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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                                        Commission File
December 31, 1996                                                Number 1-13984

                 William Greenberg Jr. Desserts and Cafes, Inc.
                 ----------------------------------------------
                 (Name of Small Business Issuer in Its Charter)


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

222 New Road, Parsippany, NJ                                     07054
-------------------------------                           ----------------------
(Address of Principal Executive Offices)                  (Zip Code)

Issuer's telephone number:   (201) 808-8248

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

                                                   Name of Each Exchange on
Title of Each Class                                Which Registered
-------------------                                ------------------------
Common Stock, $.001 per share                      Boston Stock Exchange

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     No X
                                                                      ---    ---

        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]







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        Issuer's  revenue for its most recent fiscal year was $4,232,616.  As of
March 31, 1997 there were 3,155,500  shares of Company's  Common Stock par value
$.001 per share outstanding. The aggregate market value of the voting stock held
by non-affiliates of the issuer on March 31, 1997 was approximately $5,104,830.

                       DOCUMENTS INCORPORATED BY REFERENCE

        The  information   called  for  by  Part  III  of  the  Form  10-KSB  is
incorporated by reference from the  registrant's  definitive  proxy statement or
amendment  hereto  which  will be filed not later than 120 days after the end of
the fiscal year covered by this report.

        Transitional Small Business Disclosure Format (check one):

               Yes                                 No     X
                   ---                                   ---




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                                     PART I

ITEM 1. DESCRIPTION OF THE BUSINESS

RECENT DEVELOPMENTS

        JMS ACQUISITION

        On January 17, 1997, William Greenberg Jr. Desserts and Cafes, Inc. (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
"Shares") of the Common  Stock of the Company and (iii)  350,000  warrants  (the
"Warrants")  exercisable  for  shares  of  Common  Stock  of  the  Company  (the
"Transaction").  Each Warrant  entitles  Grabow to purchase one share of Company
common stock at the exercise price of $2.50 per share until December 31, 2000.

        In connection with the Stock Purchase Agreement,  Grabow and the Company
also entered (i) a registration rights agreement,  dated as of January 23, 1997,
regarding  the terms of the  registration  of the Shares of Common  Stock of the
Company issuable upon exercise of the Warrants, and (ii) 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 Transaction, effective January 23, 1997,
Grabow was  elected to serve as a director  of the  Company.  As a result of the
Transaction,  Grabow  beneficially  owns 850,000 shares (or 24.5%) of the Common
Stock of the Company.

        With the Acquisition of the JMS Subsidiary,  the Company now also offers
a line of batter and frozen-finished  cakes,  brownies and muffins, with muffins
which constitute  approximately 90% of the JMS Subsidiary sales.  These products
are  produced  in  batches  using  partially  automated  equipment  at  the  JMS
Subsidiary  facility  in  Parsippany,  New  Jersey.  The  products  are  sold to
wholesale customers as well as supermarket distribution centers and are marketed
primarily  through food distribution  companies in New York and New Jersey.  The
management of the Company believes that distributors  sell  approximately 40% of
the product to supermarkets and 60% to food service customers such as hospitals,
colleges and corporate dining rooms.

        To develop new accounts,  the JMS Subsidiary sales personnel present the
product at food shows,  contact possible  customers  directly to have them order
the product from their distributor and through direct mailings to customers. The
JMS Subsidiary's  current food  distribution  customers  include Sysco,  Alliant
Foods,  Rykoff/Sexton  and over 75 other accounts  consisting of distributors to
supermarkets,   hospitals,   colleges,  corporate  dining  facilities  and  food
distribution companies.

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        The JMS  Subsidiary  sells its products to customers  such as Restaurant
Associates  (New York City),  the United Nations Food  Operation,  the Museum of
Natural History Restaurant and Food Operations of the World Trade Center as well
as many others. The Company management  estimates that the muffin batters of the
JMS  Subsidiary  currently  represents  approximately  70% of revenues and baked
products represent 30%.

        The JMS Subsidiary  started business in October 1984 as a company making
gourmet batter products. The product line was then extended to sugar-free,  then
fat-free and finally  frozen-finished  baked products.  According to the Company
management,  this change  reflects a change in the market place where  consumers
wanted more fat-free products and customers wanted  frozen-finished  products to
minimize  customer  time to bake and finish  batter  product.  Management of the
Company   believes  that  the   reputation  of  the  JMS  Subsidiary  has  grown
considerably as a result of the products'  taste,  texture and price value.  The
product has no preservative,  hydrogenated  oils or chemicals;  rather,  it uses
natural ingredients.

        In connection with the Transaction,  the Company  transferred all of the
business  assets owned by the Company to a  wholly-owned  subsidiary in exchange
for all of the issued and outstanding shares of common stock of such entity (the
"WGJ  Subsidiary").  As a result,  the Company currently acts as holding company
with two wholly-owned  subsidiaries,  the JMS Subsidiary and the WGJ Subsidiary.
Subject to obtaining consent of the Company's stockholders,  the Company intends
to change its name to a name more descriptive of its operations.

        The  payment  of the cash  portion  of the  purchase  price  for the JMS
Subsidary 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 qualify as "accredited  investors"  under
the  Securities  Act of 1933.  The terms of the Private  Placement  Warrants are
substantially similar to the Warrants.

        On March 20, 1997, in a press release,  the Company  President and Chief
Executive Officer,  Mr. Philip Grabow stated that "The Company is also exploring
the possibility of a spin-off of the Greenberg division or a sale of some or all
of the retail  stores."  Since that time,  the Company has retracted  that plan.
Instead the Company now intends to hold onto the WGJ Subsidiary and return it to
profitability before contemplating any future spin-off or sale.

        CHATTERLEY ELEGANT DESSERTS, INC.

        As of March 28,  1997,  the Company  entered  into a letter of intent to
acquire Chatterly Elegant Desserts,  Inc. However, no definitive agreements have
been  executed,  and  there  can be no  assurances  that any  agreement  will be
reached.

        TERMINATION OF EMPLOYMENT OF SENIOR MANAGAMENT ON APRIL 1,
        1997

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        As of April 1, 1997, persuant to settlement discussions,  the employment
of Stephen Fass, a director and President of the WGJ Subsidiary, Maria Marfuggi,
a director and President of of the JMS Subsidiary, and Seth Greenberg, President
of the WGJ Subsidiary's  baking division,  terminated.  At the present time, the
respective  parties  have  not  yet  concluded  their  settlement   discussions.
Management  intends to seek an amicable  settlement  with the named parties as a
result  of  such  terminations;  however,  each  of the  named  parties  have an
employment agreement with the Company.

        FINANCIAL CONDITION OF THE COMPANY

        As will appear from the  financial  statements  included in this filing,
the Company  reported a net loss for the fiscal year ended  December 31, 1996 of
$4,978,127,  and as of December 31, 1996 had a working capital deficiency in the
amount  of  $1,133,747.  See  the  accompanying  financial  statements  and  the
auditor's report thereto as well as the Management's  Discussion and Analysis of
Financial Condition and Plan of Operations.

GENERAL

        The WGJ  Subsidiary  offers a broad  line of premium  quality  pastries,
cakes,  pies,  cookies and other assorted desserts which are produced by hand at
its bakeries,  and marketed through its six retail stores in New York City, four
kiosks  in  department   stores  in  the  New  York   metropolitan   area,   its
institutional/wholesale  division  and  its  mail  order  division.  Greenberg's
current  institutional/wholesale  customers  include  Alliant  Food Service (for
distribution  to  Planet  Hollywood  Restaurants),  Starbucks  and over 70 other
accounts at restaurants, hotels and corporate dining facilities.

        William  Greenberg,  Jr.  opened  his first  bakery in 1946 and over the
years his reputation has grown  principally as a result of an excellent group of
union bakers  responsible  for his distinctive  style of artistically  decorated
theme  cakes,  word-of-mouth  and  favorable  reviews  of his  baked  goods  and
desserts.  The WGJ  Subsidiary  provided  theme cakes for Irving  Berlin's  85th
birthday party,  where its cake was presented on stage at Carnegie Hall, and for
the opening of the I.M. Pei wing at the National Gallery in Washington,  D.C. In
addition,  one of its theme  cakes was on  display in the  Smithsonian  Museum's
American Crafts show "The Confectioner's Art" which toured throughout the United
States.  In 1996, U.S.  President William Clinton's 50th birthday cake was a WGJ
Subsidiary  theme  cake.  Referred  to as "The  Bakery of Choice  for Native New
Yorkers,"  the WGJ  Subsidiary  has received  favorable  reviews in the New York
Times and the local New York press for its hand-made baked goods,  including its
apple pie, pecan pie,  cheesecake  and black & white  cookies.  In 1991, the WGJ
Subsidiary  won the award for "Best Cookies" in New York City in a retail market
survey conducted by Zagat's Market Survey.

        In July 1995,  the Company  acquired  the  operating  assets and assumed
certain  liabilities  of  Greenberg's-L.P.  (the  "Greenberg  Acquisition").  In
connection  with  the  Greenberg  Acquisition,  the  Company  developed  and  is
currently implementing a business strategy designed

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to increase the retail, institutional/wholesale and mail order operations of its
business.

        In October 1995, the Company  successfully  completed the initial public
offering of its securities for sale to the public.  The offering resulted in the
sale of 1,115,000  shares of the Company's  common stock at a price of $5.25 per
share  with  proceeds  to the  Company,  net of  offering  costs of  $1,118,914,
aggregating  $4,918,586.  The sale  resulted in  additional  paid-in  capital of
$4,917,436.  The Company and its directors,  officers,  and shareholders  owning
more  than  5% of  the  Common  Stock  agreed  with  the  representative  of the
Underwriter not to directly or indirectly register, issue, offer, sell, offer to
sell, contract to sell, hypothecate,  pledge, or otherwise dispose of any shares
of  Common  Stock,  or  any  securities   convertible  into  or  exercisable  or
exchangeable  for  shares of Common  Stock,  for a period of 12 months  from the
effective  date of the  Company's  initial  public  offering  without  the prior
written consent of the Underwriter.

        The Company was  incorporated in November 1993. The Company's  executive
offices  are  located at 222 New Road,  Parsippany,  NJ 07054 and its  telephone
number is (201) 808-8248.

        As used herein the "Company"  refers to William  Greenberg Jr.  Desserts
and  Cafes,  Inc.,  a state of New York  corpoation,  and its two  wholly  owned
subsidiaries,  J.M.  Specialties,  Inc.,  a New  Jersey  corporation  (the  "JMS
Subsidiary") and WGJ Deserts and Cafes, Inc. (the "WGJ Subsidiary").

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BUSINESS STRATEGY

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

        Retail.  The WGJ  Subsidiary  has six retail stores  located in New York
City,  including one at Macy's Herald Square.  The WGJ Subsidiary  also has four
kiosks  in  department  stores  in the  New  York  metropolitan  area.  The  WGJ
Subsidiary  intends  to open  additional  retail  and  kiosk  facilities  in the
Northeastern  United States under the name William  Greenberg  Jr.  Desserts and
Cafes.  These cafes and kiosks will offer a broad  selection of what the Company
believes are premium  quality  baked goods and  desserts,  a broad  selection of
espresso, cappuccino and specialty coffees and teas. With the Acquisition of the
JMS  Subsidiary,  the Company  intends to add the JMS  Subsidiary's  products to
those  available at the Company  stores.  The Company's plans to place its cafes
and kiosks in select  highly-visible,  densely  populated  urban areas which are
easily accessible to its customers.  The Company recently  concluded a lease for
an  additional  WGJ  Subsidiary  cafe in New York  City and  expects  to open an
additional three WGJ Subsidiary kiosks in 1997.

        The design of the WGJ  Subsidiary  cafe at Macy's  Herald Square will be
the  format  used  for its  other  cafes  and  kiosks.  In order  to  create  an
environment  reminiscent  of a 1950's New York City bakery,  the WGJ  Subsidiary
designs  incorporate  soft wood tones with tin ceilings,  brass  chandeliers and
sconces.

        The WGJ  Subsidiary  expects to open  additional  cafes and/or kiosks in
1997.  The WGJ  Subsidiary  is  considering  locations in office  buildings  and
regional  shopping malls. The WGJ Subsidiary  plans to strategically  locate its
cafes and kiosks to take advantage of operating and marketing efficiencies.

        Management  believes that its product  assortment  and its commitment to
quality and customer  service will enable the WGJ Subsidiary to become a premier
retailer of specialty  desserts  and coffee.  Prior to the  Acquisition  in July
1995,  Greenberg's-L.P.   focused  primarily  on  its  retail  operations  which
accounted for approximately  68.8%, 68.2% and 66.9% of sales for the years ended
December 1996, 1995 and 1994, respectively.

        Institutional/Wholesale. With the acquisition of the JMS Subsidiary, 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  WGJ  Subsidiary   institutional/wholesale  division  accounted  for
approximately 31.2%, 31.8% and 33.1% of total sales for the years ended December
31,  1996,  1995 and 1994,  respectively.  The Company  plans to expand both its
product lines and  geographic  lines and  geographic  distributions  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

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        various states to handle sales on a commission-only basis;

        Continue to expand the fat-free  product line for the penetration of its
        existing customers as well as new customers; and

        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.
Mailorder  sales  accounted  for  approximately  1%, 1% and 1% of total sales of
the  WGJ  Subsidiary  for  the  year  ended  December  31,  1996, 1995 and 1994,
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 JMS 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 WGJ  Subsidiary  markets a full line of premium  quality,  hand-made
baked products under the name "William  Greenberg Jr.  Desserts."  Additionally,
with the  acquisition  of the JMS  Subsidiary,  the Company has now expanded its
offerings to include a line of frozen batter and baked products.  In addition to
the products  listed  below,  the Company  continues to develop new products and
welcomes customer requests.  All the WGJ Subsidiary's  products are offered on a
wholesale  and retail  basis and  approximately  20 select  items are  currently
available through

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its mail order division.

        The JMS  Subsidiary  offers a variety of Gourmet  Frozen  Muffin  Batter
products,  No Sugar Added Batters,  as well as a selection of Fully Baked Thaw &
Sell

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
Company  believes  that its  kosher  certifications  will  enable  it to  better
penetrate  certain  market areas such as the Upper West Side of  Manhattan,  the
"Five Towns" area in Long Island,  New York,  sections of Rockland  County,  New
York and  sections of New Jersey and  Florida.  The  Company's  products are not
kosher for Passover.

CUSTOMERS

RETAIL

        The WGJ Subsidiary sells its products  directly to individual  consumers
at its six  retail  store  locations  in New York City,  including  its cafe and
cellar  bakery at Macy's  Herald  Square as well as its four  kiosks  located at
department  stores in the New York  metropolitan  area.  The Company  strives to
satisfy its customers every time they purchase a WGJ Subsidiary product. The WGJ
Subsidiary  depends  on and  enjoys  a high  rate of  repeat  business.  The WGJ
Subsidiary also sells its specialty desserts to customers for parties, weddings,
bar  mitzvahs  and other  special  occasions.  As stated in the  Zagat's  Market
Survey, "a special occasion does not exist without a Greenberg's cake."

INSTITUTIONAL/WHOLESALE

        The  WGJ  Subsidiary,  through  its  institutional/wholesale   division,
distributes  pastries,  cakes,  pies,  frozen  batter  baked  goods,  and  other
desserts, to hotels, country clubs, restaurants, gourmet markets, food shops and
corporate dining facilities.  Sales of this division were approximately $976,073
(33.1%)  of total  sales for the year ended  December  31,  1994,  approximately
$1,007,000   (31.8%)  of  sales  for  the  year  ended  December  31,  1995  and
approximately $1,319,886 (31.2%) of sales for the year ended December 31, 1996.

        The  WGJ  Subsidiary's  largest  institutional/wholesale  customers  are
Alliant  which  currently   purchases  one  product  for  its  Planet  Hollywood
Restaurants  and  Starbucks,  which  purchases 8 items for its stores in the New
York City Metropolitan area.

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MAIL ORDER

        The WGJ  Subsidiary  sells  its  products  through  mail  order.  Select
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 in the
New  York  City  metropolitan  area  could  readily  provide  such  products  if
necessary.

DISTRIBUTION AND MARKETING

        The WGJ  Subsidiary  currently  bakes  almost all of its products at its
5,000  square foot baking  facility in New York City.  Some of the baking of the
WGJ Subsidiary's  products will be moved to the JMS  Subsidiary's  32,000 square
foot  facility in New Jersey.  Although the  utilization  of the WGJ  Subsidiary
baking  facility  varies from time to time based on seasonal  fluctuations,  the
facility is  operating  at  approximately  30% of capacity on the  average.  The
Company  believes the WGJ Subsidiary  facility  should have the capacity to meet
its  requirements,  including those arising out of its growth strategy,  for the
next 2 to 3 years. The WGJ Subsidiary  delivers primarily all of its products by
truck to its retail stores and its institutional/wholesale  customers in the New
York  City  metropolitan   area.  Some  of  the  WGJ  Subsidiary's   retail  and
institutional/wholesale  customers  pick up their orders  directly at its bakery
and utilize  their own  distribution  networks.  The WGJ  Subsidiary  also ships
products  throughout  the United  States and  internationally  via  overnight or
second day delivery service.

        The JMS  Subsidiary  bakes all of its products at its 32,000 square foot
facility in Parsippany,  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.  Since the JMS Subsidiary uses only about half of its
facility,  the  Company  management  believes  that the JMS  Subsidiary  has the
capacity  to  meet  future  requirements,  including  those  arising  out of the
consolidation with the Company.  The JMS Subsidiary delivers 90% of its products
by truck to its

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institutional/wholesale  customers.  About  10% of its  customers  pick up their
orders directly at the bakery and utilize their own distribution networks.

        Historically,  the WGJ  Subsidiary  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.  The WGJ Subsidiary has increased its
advertising and promotional  activities by emphasizing consumer awareness of its
name and the quality of its products,  including placing advertisements in local
newspapers and magazines.

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  cafes and kiosks compete 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,  Edlair, New World Coffee, Starbucks and Timothy's Coffee of the World.
With the exception of Au Bon Pain and Eclair,  the Company believes that none of
these  competitors bake their own products.  Some of the JMS 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 registered trademarks will afford the Company.

GOVERNMENT REGULATION

        The Company is subject to  numerous  state  regulations  relating to the
preparation and sale

                                       11




<PAGE>
 
<PAGE>



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

EMPLOYEES

        As of April 1, 1997, the WGJ Subsidiary had  approximately  42 full-time
employees and 23 part-time employees,  of whom 14 are employed as bakers, 28 are
employed  in  retail,   and  7  are  in  excutive   positions   and/or   general
administrative  positions.  Some of these  employees have worked for the Company
and its predecessors for over 20 years.

        Most  of  the  WGJ  Subsidiary  employees  are  represented  by  unions.
Unionized workers are generally members of either the United Food and Commercial
Workers  Union  Local 1500 or the  Bakery,  Confectionery  and  Tobacco  Workers
International Union AFL-CIO Local 3. Greenberg's  believes it has good relations
with all of its union and non-union employees.

        As of April 1, 1997, the JMS Subsidiary had  approximately  29 full-time
employees,  of whom 21 are employed in the product,  5 are employed in sales,  2
are in  administration,  and 1 is in an executive  position.  The JMS Subsidiary
does not have a union, but the Company management believes it has good relations
with all the employees of the JMS Subsidiary.






                                       12




<PAGE>
 
<PAGE>



ITEM 2.   DESCRIPTION OF PROPERTY

        As of February 28, 1997,  the Company  leases the WGJ  Subsidiary's  six
retail  stores  (including  its cafe at  Macy's)  and the  Company's  two baking
facilities,  all of which are  located  in New York  City,  or  Parsippany,  New
Jersey. The Company currently leases  approximately  3,600 square feet of retail
space and 37,000 square feet, for its baking  facilities.  The Company  believes
that its  existing  leases  will be renewed as they  expire or that  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,  including the needs generated by its growth strategy.  The
following table  summarizes  certain  information  with respect to the Company's
leases:

<TABLE>
<CAPTION>

                                     Approximate                               Expiration
            Location                 Square Feet          Description             Date
            --------                 -----------          -----------             ----
<S>                                  <C>                  <C>              <C>
1100 Madison Avenue, NYC                          560       Retail           February 1999
2187 Broadway, NYC                                450       Retail             July 1999
518 Third Avenue, NYC                             540       Retail             March 2001
533 West 47th Street, NYC                       5,000       Baking             July 2006
222 New Road, Parsippany, NJ                   32,000       Baking           April 31, 1998
Macy's Herald Square                              500       Retail        Upon 90 days notice
60 East 8th Street, NYC                           650       Retail              May 2003
434 Sixth Avenue, NYC                             900       Retail             June 2006

</TABLE>


MACY'S LICENSE AGREEMENT

        The  Company  entered  into  a  departmental   license   agreement  (the
"License"),  dated as of February 1995, with Macy's East, Inc.  ("Macy's").  The
License  grants the Company the right to operate,  subject to certain  terms and
conditions,  a William Greenberg Jr. Desserts and Cafe as a department of Macy's
until July 31, 1996, with an automatic renewal provision for successive one year
periods,  if the Company is not in default under the License.  This location has
been operating since November 1995.  Under the terms of the License,  during the
initial term,  Macy's has the unilateral  right to terminate the License upon 90
days prior notice.  Additionally,  during each renewal term either party has the
right to terminate  the License upon 90 days notice prior to the  expiration  of
the  renewal  term.  Any such  termination  will have an  adverse  effect on the
Company's  results of  operations.  Pursuant  to the terms of the  License,  the
Company  has  agreed to pay  Macy's an  annual  license  fee of 10% of net sales
generated from this cafe. The Company has also agreed that all employees, except
for  management  personnel,  at this location  will be employees of Macy's.  The
Company  has  agreed to  reimburse  Macy's  for the  wages,  salaries,  employee
benefits  and  business  expenses of its  employees  at this cafe.  In addition,
pursuant  to the terms of the License the Company is required to spend an amount
equal to 3% of its net sales from this cafe on advertising.

                                       13




<PAGE>
 
<PAGE>



        The Company has also  concluded a lease for an additional WGJ Subsidiary
cafe in  Manhattan  for 900 square feet and plans to open this cafe in 1997.  In
connection  with the opening of this cafe,  the Company  entered  into a 10-year
lease for 900 square feet of retail space, expiring in June of 2006.













                                       14




<PAGE>
 
<PAGE>



ITEM 3.   LEGAL PROCEEDINGS

        The Company is currently subject to the following legal proceedings:

1.      A  summary  non-payment  proceeding  seeking  approximately  $23,000  in
        damages,  commenced by Harran Holding Corp.,  the Company's  landlord at
        434 Avenue of the Americas.  This  proceeding  was commenced on February
        20th,  1997.  As of April 1, 1997 this  ligation has been  settled,  and
        construction is proceeding at this store.

2.      A  summary  non-payment  proceeding  seeking  approximately  $17,000  in
        damages,  commenced by Stanley  Stahl,  the  Company's  landlord at 2187
        Broadway. This proceeding was commenced on March 10th, 1997. As of April
        1, 1997 this litigation has been settled.

3.      A  summary  non-payment   proceeding  seeking  approximately  $7,000  in
        damages,  commenced by Rugby Managed Asset Fund, the Company's  landlord
        at 166 East 35th Street  a/k/a 518 Third  Avenue.  This  proceeding  was
        commenced  on  March 4, 1997. As of April 1, 1997 this ligation has been
        settled.

4.      A civil court action seeking  approximately $7,000 for advertising fees,
        commenced by Kratz & Company,  Inc.  This  proceeding  was  commenced on
        March 11, 1997.

5.      A mechanics' lien seeking approximately $6,000 in damages,  commenced by
        KLM  Construction  Management  Inc.  This  proceeding  was  commenced on
        January 7, 1997.  The Company has been  attempting to settle this matter
        without  further  litigation,  but as of yet  there  has  been no  final
        settlement.

6.      As of April 1, 1997, pursuant to settlement discussions,  the employment
        of Stephen Fass, a director and President of the WGJ  Subsidiary,  Maria
        Marfuggi,  a  director  and  President  of the JMS  Subsidiary  and Seth
        Greenberg,   president  of  the  WGJ   Subsidiary's   baking   division,
        terminated.  At the present time,  the  respective  parties have not yet
        concluded their settlement  discussions.  The Company intends to seek an
        amicable settlement, including the employment agreements, with the named
        parties as a result of such termination.  However,  on April 11, 1997 an
        action was commenced by William Greenberg Jr. and Seth Greenberg against
        the Company, seeking summary judgement in lieu of a complaint,  based on
        their  Consulting  Agreements with the Company for payment of $14,615.40
        to William  Greenberg Jr. and $15,769.24 to Seth Greenberg.  The parties
        believe that an amicable solution can be reached.

7.      Andersen  Rogan Ross Temporary  Personnel Inc. v. William  Greenberg Jr.
        Desserts and Cafes Inc.:  By letter  dated March 18,  1997,  counsel for
        Andersen Rogan Ross Temporary  Personnel Inc. ("Temp Personnel") advised
        the company that it had been retained to commence an action  against the
        Company  for  temporary  labor  provided to the Company in the amount of
        $19,678.46, plus interest from December 9, 1996. While a

                                       15




<PAGE>
 
<PAGE>



        copy of the summons and  complaint  accompanied  the March 18th  letter,
        such summons and complaint  have not yet been served on the Company.  As
        provided  in the March  18th  letter,  counsel  for Temp  Personnel  was
        notified that the validity of the debt is disputed, and according to the
        March 18th letter,  having  disputed  the debt,  the Company will not be
        provided with verification of the debt.












                                       16




<PAGE>
 
<PAGE>



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

        Not applicable.















                                       17




<PAGE>
 
<PAGE>



                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        The  Company's  Common  Stock is quoted on the  Nasdaq  Small Cap Market
under the symbol "BAKE" 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 period from October 13,
1995 (the date the Company's  Common Stock began  trading)  through  Febuary 28,
1997.

<TABLE>
<CAPTION>
Period                                     High     Low
----------------------------------------------------------
<S>                                      <C>       <C>
FISCAL YEAR 1995:
October 13, 1995-December 1995           $5 13/16  5 1/4
FISCAL YEAR 1996:
First Quarter                             5 3/4    4 1/2
Second Quarter                            5 3/4    2 1/8
Third Quarter                             3 3/4    1 5/8
Fourth Quarter                            3 1/2    1 1/2
FISCAL YEAR 1997:
First Quarter (through February 28,       2 2/16   1 1/2
1997)

</TABLE>



        The number of shareholders of record of the Common Stock on February 28,
1997 was 22,  excluding  1,146,240 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.

                                       18




<PAGE>
 
<PAGE>



ITEM 6.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND PLAN OF OPERATION

        (A)  GENERAL:

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

               At December  31, 1996 to the extent the Company may have  taxable
        income in future  periods,  there is available a net operating  loss for
        federal  income tax purposes of  approximately  $4,600,000  which can be
        used to  reduce  the tax on income up to that  amount  through  the year
        2011.

        (B)  RESULTS OF OPERATIONS:

               Historical:

               The Company from its  inception on November 12, 1993 through July
        10,  1995  was in  the  development  stage  and  did  not  carry  on any
        significant  operations nor generate any revenues.  Management's efforts
        were directed  toward 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 revenues  aggregated  $4,233,000 and $1,741,000 for
        the years ended  December 31, 1996 and 1995,  respectively.  The cost of
        goods  sold was  $3,110,000  in 1996 and  $1,281,000  in 1995.  Selling,
        general  and  administrative   expenses  were  $3,836,000  in  1996  and
        $1,340,000 in 1995. As a result,  the loss from  operations for 1996 was
        $2,713,000 as compared to a loss from operations of $911,000 for 1995.

               During  the  fourth  quarter  of 1996,  the  Company  recorded  a
        $450,000 charge for management's estimate of the costs for actions aimed
        at  restructuring  the  Company in order to reduce  operating  costs and
        enhance the Company's focus and efficiency. The restructuring charge was
        predominately comprised of costs associated with renegotiating executive
        employment contracts, severance costs associated with the elimination of
        certain  positions and provision for lease obligations on certain retail
        stores.

                                       19




<PAGE>
 
<PAGE>



               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,  a
        provision for  impairment  losses  aggregating  $797,559 was charged and
        included as part of other  expenses  in the  accompanying  statement  of
        operations.  Such  impairment loss represents the excess of the carrying
        value of $1,647,559 over management's  estimate of the fair market value
        of the assets of $850,000.

               In addition, management has determined that  unamortized goodwill
        at December 31, 1996 of $840,780 which was recorded upon the acquisition
        of the net operating assets of Greenberg's-L.P., has no continuing value
        and, accordingly, was charged to operations in 1996.

               For the year ended December 31, 1996, the Company earned interest
        income of  $42,000  which  arose  from  investing  a portion  of the net
        proceeds  it  received  upon  the  consummation  of the  initial  public
        offering in highly liquid cash  equivalents.  Interest  expense for 1996
        was paid on the $2,000,000 term loan which was repaid in October 1996.

               The 1996 and 1995  statements of  operations  reflect a charge in
        the amount of $11,775 and $856,871,  respectively,  which represents the
        fair  market  value of a warrant to acquire  3,925 and  163,404  shares,
        respectively,  of  common  stock  issued  to a lender in order to obtain
        financing for the purchase of the operating assets of Greenberg's- L.P.,
        valued  at $3.00  per  share in 1996 and  $5.25 per share in 1995 and in
        connection with other warrants issued in 1996.

               The resulting net loss aggregated  $4,969,000 for 1996 ($1.82 per
        share) and $1,861,000 for 1995 ($1.02 per share).

               The 143%  increase in net sales during 1996,  as compared to 1995
        were  primarily  due to the  fact  that  1995  includes  six  months  of
        operations.  The opening of three cafes;  one in Macy's Herald Square in
        November  1995,  another in lower  Manhattan in May 1996, and a third in
        Macy's Herald Square in July 1996 also had the effect of increasing  net
        sales in 1996. The Company also  experienced a general  increase in same
        store sales.

               The increase in cost of sales as a  percentage  of sales for 1996
        as  compared  to 1995  is  attributable  to (i) an  increase  in  baking
        personnel and labor rates,  (ii) increased  costs in the  development of
        new baked  products,  and (iii) increases in the cost of ingredients and
        packaging  materials.  The  Company  was  unable  to pass  most of these
        increased costs on to its customers.

               The retail and wholesale  divisions  sell similar  products which
        are  baked at the  Company's  centralized  baking  facility.  Costs  are
        allocated to each  division  based upon the standard  costs of the items
        sold.  Such costs  consist of  ingredients,  direct labor and  overhead.
        Prior to the  Greenberg's-L.P.  acquisition,  the wholesale division was
        considered  an outgrowth of the retail  business and was  therefore  not
        considered a separate business  segment.  Subsequent to the acquisition,
        management  has  concentrated  their  efforts on running  the  wholesale
        segment as a separate and distinct business.

                                       20




<PAGE>
 
<PAGE>



               Selling,  general  and  administrative  expenses  of  the  retail
        segment  consist of (i)  expenses  incurred  in each of the five  retail
        stores  and  (ii)  expenses  allocated  from the  Company's  centralized
        operating  facility  which  are based  primarily  on sales  volume.  The
        increase in selling, general and administrative expenses as a percentage
        of sales during 1996 as compared to 1995 was primarily the result of (i)
        salaries and rent paid in its two Cafes in Macy's  Herald Square and its
        new retail store in lower  Manhattan,  (ii) the allocation to the retail
        segment  of  salaries  of  additional   management  and   administrative
        personnel,   (iii)  increased  compensation  paid  to  prior  management
        personnel pursuant to consulting  agreements entered into by the Company
        upon  consummation  of the  acquisition  in July 1995, and (iv) costs of
        advertising Catalogues incurred during 1996.

               The  increases  in  depreciation  and  amortization  for  1996 as
        compared  to 1995 is  attributable  to  depreciation  on the two  Macy's
        Herald Square Cafe and the new retail store in lower Manhattan.

               The increase in the loss from operations  during 1996 as compared
        with in 1995 is  primarily  attributed  to the  increases in the cost of
        products  sold  and  additional   compensation   paid  to  officers  and
        managerial  personnel under their  respective  employment and consulting
        agreements and start-up costs incurred in the retail  division three new
        cafes.

        (C)  PROFORMA:

               Insofar as the Company had no revenues  prior to the  Acquisition
        in July 1995,  management  is of the opinion  that a  discussion  of the
        results  of  operations  of  the  Company  (and  Greenberg's-L.P.)  on a
        proforma basis would be more informative  than a comparative  discussion
        of the Company on a historical basis. Therefore, management's discussion
        of the Company's  results of operations for year ended December 31, 1996
        as compared with 1995 are based on the pro-forma  segmental  information
        found below and reflects the purchase of  Greenberg's-L.P.  as if it had
        occurred as of January 1, 1995.

               RETAIL SEGMENT:

               The retail  segment  presently  consists of six (6) retail stores
        located in Manhattan,  New York,  including its two (2) cafes located in
        Macy's  Herald  Square.  The  Company's  fifth  retail  store  opened in
        Manhattan  in May 1996 and its 2nd Macy Cafe  opened in July  1996.  All
        baking is done at the  Company's  bakery  which is  located on West 47th
        Street, New York, New York. From this location, baked goods are supplied
        to retail stores as well as to wholesale customers.

               The results of the retail  segment is presented a proforma  basis
        and reflects the acquisition of  Greenberg's-L.P.  as if it has occurred
        as of January 1, 1995.




                                       21




<PAGE>
 
<PAGE>


<TABLE>
<CAPTION>

                                      For the Years Ended
                                          December 31,                                   Percentage
                          ---------------------------------------------                  Change (as
                             1996         %           1995         %         Change     a % of Sales)
                          ----------    ------     ----------    ------     --------    -------------
<S>                         <C>          <C>         <C>          <C>         <C>            <C>  
Net sales                   $2,913,000   100.00%     $2,161,000   100.00%     $752,000       0.00%
Cost of sales                1,983,000    68.07       1,370,000    63.40       613,000       4.67
                            ----------   ------      ----------   ------      --------      -----

Gross profit                   930,000    31.93         791,000    36.60       139,000     ( 4.67)

Selling, general and
  administrative
  expenses                   2,334,000    80.12       1,397,000    64.65       937,000       15.47

Depreciation and
  amortization                 192,000     6.59          73,000     3.38       119,000     ( 3.21)
                            ----------   ------      ----------   ------      --------      -----

Loss from operations       ($1,596,000)( 54.78%)    ($  679,000)( 31.43%)    ($917,000)    (23.35%)
                            ==========  =======      ==========  =======      ========      ======

</TABLE>

                     The 35%  increase  in net sales  during 1996 as compared to
            1995 was  primarily  due to the opening of two cafes;  one in Macy's
            Herald Square in November 1995 and another in lower Manhattan in May
            1996, and a general increase in same store sales.

                     The increase in cost of sales as a percentage  of sales for
            1996 as  compared  to 1995 is  attributable  to (i) an  increase  in
            baking  personnel  and  labor  rates,  (ii)  increased  costs in the
            development of new baked  products,  and (iii) increases in the cost
            of ingredients  and packaging  materials.  The Company was unable to
            pass most of these increased costs on to its customers.

                     The retail and wholesale  divisions  sell similar  products
            which are baked at the Company's centralized baking facility.  Costs
            are allocated to each division  based upon the standard costs of the
            items sold.  Such costs  consist of  ingredients,  direct  labor and
            overhead.  Prior to the  Acquisition,  the  wholesale  division  was
            considered an outgrowth of the retail business and was therefore not
            considered  a  separate   business   segment.   Subsequent   to  the
            Acquisition,  management has  concentrated  their efforts on running
            the wholesale segment as a separate and distinct business.

                     Selling,  general and administrative expenses of the retail
            segment  consist of (i) expenses  incurred in each of the six retail
            stores and (ii) expenses  allocated  from the Company's  centralized
            operating  facility which are based  primarily on sales volume.  The
            increase in selling, general and administrative expenses during 1996
            as compared to 1995 was primarily the result of (i) salaries paid to
            sales personnel in its two cafes in Macy's Herald Square and its new
            retail store in lower  Manhattan,  (ii) the allocation to the retail
            segment of  salaries of  additional  management  and  administrative
            personnel, and (iii) increased compensation paid to prior management
            personnel  pursuant to  consulting  agreements  entered  into by the
            Company upon consummation of the Acquisition in July 1995.

                                       22




<PAGE>
 
<PAGE>

                     The increase in depreciation  and amortization for the 1996
            as compared to 1995 is  attributable  to  depreciation on the Macy's
            Herald  Square Cafes and the new retail store in lower  Manhattan as
            well as on the write up of assets purchased from Greenberg's-L.P. to
            appraised  values and  amortization of goodwill which started on the
            date of acquisition.

                     The  increase  in the net loss for 1996 as compared to 1995
            is  primarily  attributed  to the  increases in the cost of products
            sold and  additional  compensation  paid to officers and  managerial
            personnel   under  their   respective   employment   and  consulting
            agreements.

                     WHOLESALE SEGMENT:


<TABLE>
<CAPTION>
                                      For the Years Ended
                                          December 31,                                    Percentage
                          --------------------------------------------                   Change (as
                             1996         %           1995         %         Change     a % of Sales)
                          ----------    ------     ----------    ------     --------    -------------
<S>                         <C>          <C>         <C>          <C>         <C>            <C>  
Net sales                   $1,319,000   100.00%     $1,007,000   100.00%     $312,000       0.00%
Cost of sales                1,126,000    85.37         781,000    77.56       345,000       7.81
                            ----------   ------      ----------   ------      --------       -----

Gross profit                   193,000    14.63         226,000    22.44     (  33,000)    ( 7.81)

Selling, general and
  administrative
  expenses                   1,204,000    91.28         511,000    64.65       693,000      40.54

Depreciation and
  amortization                 106,000     8.04          25,000     2.48        81,000     ( 5.56)
                            ----------   ------      ----------   ------      --------      -----

Loss from operations       ($1,117,000)( 84.69%)    ($  310,000)( 30.78%)    ($807,000)    (53.91%)
                            ==========  =======      ==========  =======      ========      ======

</TABLE>

                     Selling,   general  and  administrative   expenses  of  the
            wholesale  segment for 1996  increased by $676,000  over 1995.  Such
            increases  were  primarily  the  result  of  an  allocation  to  the
            wholesale  segment of the  salaries  of  additional  management  and
            administrative  personnel, as well as increased compensation paid to
            prior management personnel.  The additional management personnel and
            the additional  compensation  paid to prior personnel was the result
            of the various employment and consulting  agreements entered into by
            the  Company  upon  or  subsequent  to  the   consummation   of  the
            acquisition  in 1995 of  Greenberg's-L.P.  catalogue  costs incurred
            during 1996 also contributed to the increase in selling, general and
            administrative cost during 1996.

                     The increase in depreciation  and  amortization for 1996 as
            compared to 1995 is  attributable  to depreciation on newly acquired
            property asset additions.

                     The  increases in the net loss for 1996 as compared to 1995
            is primarily  attributed to lower margins caused by increases in the
            cost of  certain  ingredients,  baking  salaries  and  new  products
            coupled with additional compensation paid to officers and managerial
            personnel   under  their   respective   employment   and  consulting
            agreements  entered  into by the  Company  in  connection  with  the
            Acquisition  of the business of  Greenberg's-L.P.  and the Company's
            initial public offering.

                                       23




<PAGE>
 
<PAGE>




            (D)  PLAN OF OPERATION:

              (I)  REORGANIZATION OF NEW YORK CITY BAKING OPERATIONS:

                     During the first 3-1/2 months of 1997  management has taken
            numerous steps to restructure its New York City baking  operation in
            a  concentrated  effort  to reduce  operating  costs.  Their  plans,
            already  in  progress,   involve  a  restructuring   of  the  entire
            management  team.  Duties have been divided  between  manufacturing,
            wholesale and retail operations.  The commissary at 47th Street, New
            York City has been  redesigned  with resulting  savings in labor and
            overhead. Purchasing has been centralized which has also resulted in
            savings.  Leases have been renegotiated,  employment contracts which
            have  seriously  impacted the Company's  cash flows have been either
            renegotiated or terminated.

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

             (II)  ACQUISITION OF J.M. SPECIALTIES, INC.:

                     On January  17,  1997,  the  Company  entered  into a stock
            purchase  agreement  (the "Stock Purchase  Agreement")  with Phillip
            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  ("JMS
            Subsidiary"),  in exchange  for (i)  $900,000 in cash,  (ii) 500,000
            shares (the  "Shares")  of the Common Stock of the Company and (iii)
            400,000 warrants (the  "Warrants")  exercisable for shares of Common
            Stock of the Company  (the  "Transaction").  Each  warrant  entitles
            Grabow to purchase one share of Company common stock at the exercise
            price of $2.50 per share until December 31, 2000. In connection with
            the Stock  Purchase  Agreement,  Grabow and the Company also entered
            (i) a registration  rights agreement,  dated as of January 23, 1997,
            regarding  the  terms of the  registration  of the  Shares of Common
            Stock of the Company  issuable upon  exercise of the  Warrants,  and
            (ii) 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 Transaction, effective January 23, 1997,
            Grabow  was  elected  to serve as a director  of the  Company.  As a
            result of the Transaction,  Grabow  beneficially owns 850,000 shares
            (or 24.5%) of the Common Stock of the Company.

                                       24




<PAGE>
 
<PAGE>



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

                     To develop new accounts, the JMS Subsidiary sales personnel
            present  the  product  at food  shows,  contact  possible  customers
            directly to have them order the product from their  distributor  and
            through direct mailings to customers.  The JMS Subsidiary's  current
            food   distribution   customers   include   Sysco,   Alliant  Foods,
            Rykoff/Sexton and over 75 other accounts consisting of supermarkets,
            hospitals,   colleges,   corporate   dining   facilities   and  food
            distribution companies.

                     The  JMS  Subsidiary   sells  its  products  to  Restaurant
            Associates (New York City),  the United Nations Food Operation,  the
            Museum of Natural  History  Restaurant  and Food  Operations  of the
            World Trade  Center as well as many others.  The Company  management
            estimates  that  muffin  batters  of the  JMS  Subsidiary  currently
            represents 70% of revenue and baked products represents 30%.

                     The JMS  Subsidiary  started  business in October 1984 as a
            company making gourmet  batter  products.  The product line was then
            extended to  sugar-free,  then fat-free and finally  frozen-finished
            baked  products.  According to the Company  management,  this change
            reflects a change in the market  place where  consumers  wanted more
            fat-free products and customers wanted  frozen-finished  products to
            minimize customer time to bake and finish batter product. Management
            of the  JMS  Subsidiary  believes  that  the  reputation  of the JMS
            Subsidiary  has  grown  considerably  as a result  of the  products'
            taste,  texture and price  value.  The product has no  preservative,
            hydrogenated oils or chemicals; rather, it uses natural ingredients.

                     In connection with the Transaction, the Company transferred
            all of the business  assets  owned by the Company to a  wholly-owned
            subsidiary in exchange for all of the issued and outstanding  shares
            of common stock of such entity (the "Subsidiary").  As a result, the
            Company  currently  acts as holding  company  with two  wholly-owned
            subsidiaries,  the JMS Subsidiary and the WGJ Subsidiary. Subject to
            obtaining consent of the Company's stockholders, the Company intends
            to change its name to a name more descriptive of its operations.

                     As part of the  Transaction,  the Company agreed to provide
            $600,000 to the JMS Subsidiary  for working  capital  purposes.  The
            payment  of the  cash  portion  of the  purchase  price  for the JMS
            Subsidiary and such working  capital,  aggregating  $1,500,000,  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  qualify  as
            "accredited  investors"  under the Securities Act of 1933. The terms
            of the Private Placement  Warrants are substantially  similar to the
            Warrants.

                                       25




<PAGE>
 
<PAGE>



             (III)  OTHER ACQUISITIONS:

                     On March 20, 1997,  the Company  entered into an employment
            contract with the former  owners of a company that produced  low-fat
            and  fat-free  cookies.  Pursuant to the contract  both  individuals
            received a signing bonus aggregating $59,000 and will each receive a
            salary  of  $25,000  per  annum  with  an  opportunity  to  earn  an
            additional $50,000 each based on sale performance.  In addition both
            individuals  will be entitled to an aggregate of 50,000  warrants in
            the event that sales volume exceeds $750,000 per annum.

             (IV)  PENDING NEGOTIATIONS:

                     On March 17, 1997, the Company signed a letter of intent to
            acquire the stock of a bakery. The acquisition, if consummated, will
            be accounted for as a pooling of  interests.  Plans also call for an
            expansion  of the JMS  Subsidiary,  closing of part of their  baking
            operations  and  merging  it into the  bakery  with whom a letter of
            intent has been signed.  There can be no assurance that a definitive
            agreement will be reached or, if reached,  that a closing thereunder
            will occur.

            (E)  LIQUIDITY AND CAPITAL RESOURCES:

             (I)     LIQUIDITY:

                     Since its inception  the  Company's  only source of working
            capital has been the  $5,700,000  received  from the issuance of its
            securities.

                     In June 1995,  the Company  issued 180,000 shares of common
            stock to unrelated  parties for  $600,000  and in August  1995,  the
            Company  issued  60,000  shares  of its  common  stock to  unrelated
            parties  for  $200,000.   In  connection  with  the  Acquisition  of
            Greenberg's-L.P.,  the Company received  $2,000,000 from the sale of
            two notes to InterEquity  Capital  Partners,  L.P.  ("InterEquity").
            During October 1995, the Company received net proceeds of $4,900,000
            from the sale of 1,150,000  shares of its common stock in an initial
            public offering.  Of the $5,700,000 proceeds from the aforementioned
            stock sales:  (i) $2,125,000 was used to repay the InterEquity  debt
            including  interest;  (ii) $2,615,000 was used in operations;  (iii)
            $765,00 was used to purchase property, equipment and leaseholds; and
            (iv) $195,000 was used for general corporate purposes.

                     As of December 31, 1996,  the Company has negative  working
            capital of  approximately  $1,134,000.  During the first  quarter of
            1997 management took actions aimed at  restructuring  the Company in
            order to reduce  operating costs and enhance the Company's focus and
            efficiency.  Pursuant to the restructuring a new management team was
            put into place, executive contracts and leases were renegotiated and
            certain  positions  were  eliminated.  The Company  expects that the
            aforementioned  actions  will  stop the cash  outflows  which it has
            experienced since inception.

                                       26




<PAGE>
 
<PAGE>



             (II)    CAPITAL RESOURCES:

                     On  January  23,  1997,  the  Company   purchased  the  JMS
            Subsidiary  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.

                     The  pro  forma  effect  of  the  acquisition  and  private
            placement  increased the Company's  working  capital by $927,000 and
            cash by $821,000.

                     If  and  when  the  market  price  of the  Company's  stock
            increases and exceeds the exercise price of the warrants  previously
            issued,  the Company can expect to recieve 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 Subsidiary
            acquisition.

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

             (III)   INFLATION AND SEASONALITY:

                     To date,  inflation has not had a significant impact on the
            Company's  operations.   The  Company's  revenues  are  affected  by
            seasonaltity  with revenues  anticipated to increase  during holiday
            seasons such as Thanksgiving, Christmas, Jewish New Year, Easter and
            Passover.

            (f)      Statements Regarding Forward-Looking Information

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

                                       27




<PAGE>
 
<PAGE>



ITEM 7.  FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                            <C>
Index to Financial Statement.................................................................F-1

Independent Accountants' Report..............................................................F-2

Financial Statements:

            Balance Sheets as at December 31, 1996 and 1995..................................F-3

            Statement of Operations
                     For the Years Ended December 31, 1996 and 1995..........................F-4

            Statements of Stockholders' Equity (Deficiency)
                     For the Years Ended December 31, 1996 and 1995..........................F-5

            Statements of Cash Flows
                     For the Years Ended December 31, 1996 and 1995..........................F-6

Notes to Financial Statements........................................................F-7 to F-23

</TABLE>


                                       28




<PAGE>
 
<PAGE>



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

Not Applicable






                                       29




<PAGE>
 
<PAGE>



                                    PART III

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

            Pursuant to General Instruction E(3) of Form 10-KSB, the information
called for by this Item regarding  directors is hereby incorporated by reference
from the Company's  definitive  proxy statement or amendment  hereto to be filed
pursuant to  Regulation  14A not later than 120 days after the end of the fiscal
year covered by this report.

ITEM 10.     EXECUTIVE COMPENSATION

            Pursuant to General Instruction E(3) of Form 10-KSB, the information
called for by this Item regarding  directors is hereby incorporated by reference
from the Company's  definitive  proxy statement or amendment  hereto to be filed
pursuant to  Regulation  14A not later than 120 days after the end of the fiscal
year covered by this report.

ITEM  11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                     MANAGEMENT

            Pursuant to General Instruction E(3) of Form 10-KSB, the information
called for by this Item regarding  directors is hereby incorporated by reference
from the Company's  definitive  proxy statement or amendment  hereto to be filed
pursuant to  Regulation  14A not later than 120 days after the end of the fiscal
year covered by this report.

ITEM 12.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

            Pursuant to General Instruction E(3) of Form 10-KSB, the information
called for by this Item regarding  directors is hereby incorporated by reference
from the Company's  definitive  proxy statement or amendment  hereto to be filed
pursuant to  Regulation  14A not later than 120 days after the end of the fiscal
year covered by this report.




                                       30




<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 February  7, 1997,  the  Company  filed a Current  Report on Form 8-K,
dated January 1, 1997, to report under Item 2 thereof the Company's  acquisition
of all the outstanding  shares of J.M.  Specialties,  Inc., and to include under
Items 7(a) and 7(b) thereof,  the financial  statements and pro forma  financial
information relating to such acquisition transaction.

(c)    Listing of Exhibits


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

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

       **3.1          Restated Certificate of Incorporation.

       **3.2          Amended and Restated By-laws.

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

       **4.2          Form of Representatives Warrant.

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

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

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

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

</TABLE>

                                       31




<PAGE>
 
<PAGE>



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

       **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.

</TABLE>

                                       32




<PAGE>
 
<PAGE>


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

       *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.
**  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 1995 on Form 10-KSB Commission File Number 1-13984.



                                       33




<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 17, 1997.

                         William Greenberg Jr. Desserts & Cafes, 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 17, 1997.


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


/s/ Philip Grabow                      President, Chief Executive Officer, Chief
__________________________________     Financial and Accounting Officer/Director
Philip Grabow                          



/s/ Richard Fechtor                    Director
__________________________________
Richard Fechtor


/s/ Raymond J. McKinstry               Director
__________________________________
Raymond J. McKinstry

</TABLE>






                                       34




<PAGE>
 
<PAGE>



                 WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.

                          INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                        Page No.
                                                                                        -------
<S>                                                                                           <C>
INDEPENDENT ACCOUNTANTS' REPORT ..................................................          F-2



FINANCIAL STATEMENTS:

      Balance Sheets as at December 31, 1996 and 1995 ............................          F-3


      Statements of Operations
         For the Years Ended December 31, 1996 and 1995 ..........................          F-4


      Statements of Stockholders' Equity (Deficiency)
         For the Years Ended December 31, 1996 and 1995 ..........................          F-5


      Statements of Cash Flows
         For the Years Ended December 31, 1996 and 1995 ..........................          F-6



NOTES TO FINANCIAL STATEMENTS ....................................................      F-7 to F-23

</TABLE>





                                       F-1




<PAGE>
 
<PAGE>


                   [LETTERHEAD OF WEINICK, SANDERS & CO. LLP]





                         INDEPENDENT ACCOUNTANTS' REPORT

To the Board of Directors and Stockholders
William Greenberg Jr. Desserts and Cafes, Inc.

We have  audited  the  accompanying  balance  sheets of  William  Greenberg  Jr.
Desserts  and Cafes,  Inc.  as at December  31,  1996 and 1995,  and the related
statements of operations,  stockholders' equity (deficiency), and cash flows for
the years then ended.  These 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of William Greenberg Jr. Desserts
and  Cafes,  Inc.  as at  December  31,  1996 and 1995,  and the  results of its
operations  and its cash  flows for the years then  ended,  in  conformity  with
generally accepted accounting principles.

The accompanying  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, 1996 and as of December 31, 1996 has a working  capital  deficiency
in the amount of $1,133,747,  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 is discussed in the
notes to the financial statements.


                                                  /s/ Weinick, Sanders & Co. LLP


New York, N. Y.
March 21, 1997
(Except for Note 11 and 13 for
which the date is April 1, 1997)



                                       F-2






<PAGE>
 
<PAGE>



                 WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.

                                 BALANCE SHEETS


<TABLE>
<CAPTION>

                                   A S S E T S

                                                                            December 31,
                                                                     --------------------------
                                                                        1996               1995
                                                                     -----------    -----------
<S>                                                                       <C>           <C>   
Current assets:
   Cash and cash equivalents (Note 2)                                $  204,136    $ 2,169,999
   Accounts receivable - trade net of allowance
     for doubtful accounts of $18,500 in 1996
     and 1995 (Note 2)                                                  275,060        222,623
   Inventory (Note 2)                                                    75,000         91,631
   Prepaid insurance                                                    117,941         89,342
   Prepaid expenses and other current assets                              9,231         11,190
                                                                     -----------    -----------
          Total current assets                                          681,368      2,584,785
                                                                     -----------    -----------

Other assets:
   Property and equipment, at recoverable amount
     in 1996 and at cost in 1995, less accumulated
     depreciation and amortization of $37,702 in
     1995 (Notes 2 and 5)                                               850,000      1,477,062
   Covenant not to compete (Notes 2 and 3)                               87,500        112,500
   Goodwill (Notes 2 and 6)                                                --          903,060
   Security deposits (Note 7)                                           116,108         77,772
                                                                     -----------    -----------
          Total other assets                                          1,053,608      2,570,394
                                                                     -----------    -----------

                                                                    $ 1,734,976    $ 5,155,179
                                                                     ===========    ===========

                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:
   Accounts payable                                                 $   834,531    $   387,630
   Estimated liability for restructuring (Note 2)                       450,000           --
   Accrued payroll:
     Stockholder/officer (Note 9)                                        71,634           --
     Other                                                              140,751           --
   Accrued expenses and other current liabilities                       318,199         64,240
                                                                     -----------    -----------
          Total current liabilities                                   1,815,115        451,870
                                                                     -----------    -----------

Deferred rent (Note 8)                                                   68,602         23,207
                                                                     -----------    -----------

Commitments and contingencies (Note 10)                                    --             --

Stockholders' equity (deficiency) (Note 9):
   Preferred stock - $.001 par value
     Authorized - 2,000,000 shares
     Issued - none
   Common stock - $.001 par value
     Authorized - 10,000,000 shares
     Issued and outstanding - 2,621,500 shares
       in 1996 and 2,560,000 shares in 1995                               2,622          2,560
   Additional paid-in capital                                         6,746,564      6,597,342
   Accumulated deficit                                               (6,897,927)    (1,919,800)
                                                                     -----------    -----------
          Total stockholders' equity (deficiency)                    (  148,741)     4,680,102
                                                                     -----------    -----------

                                                                    $ 1,734,976    $ 5,155,179
                                                                     ===========    ===========


</TABLE>

                       See notes to financial statements.

                                       F-3




<PAGE>
 
<PAGE>



                 WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.

                            STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>

                                                                             For the Years Ended
                                                                                 December 31,
                                                                         ---------------------------
                                                                             1996             1995
                                                                         ----------       ----------
<S>                                                                      <C>              <C>       
Net sales                                                                $4,232,616       $1,741,014
                                                                         ----------       ----------

Costs and expenses:
   Cost of sales                                                          3,109,536        1,280,963
   Selling, general and administrative expenses                           3,836,193        1,340,774
   Consulting fees - related party (Note 10)                                   -              30,000
                                                                         ----------       ----------
Total costs and expenses                                                  6,945,729        2,651,737
                                                                         ----------       ----------

Loss from operations                                                    ( 2,713,113)     (   910,723)
                                                                         ----------       ----------

Other income (expenses):
   Interest expense                                                     (     5,555)     (   112,735)
   Write-off of goodwill                                                (   840,780)            -
   Loss on impairment of property and
     equipment (Notes 2 and 5)                                          (   797,559)            -
   Restructuring loss (Note 2)                                          (   450,000)            -
   Interest income                                                           41,767           19,108
   Compensatory element of issuance of warrants                         (   204,064)     (   856,871)
                                                                         ----------       ----------
Total other income (expenses)                                           ( 2,256,191)     (   950,498)
                                                                         ----------       ----------

Net loss before income taxes                                            ( 4,969,304)     ( 1,861,221)

Provision for income taxes                                                    8,823             -
                                                                         ----------       -----------

Net loss                                                                ($4,978,127)     ($1,861,221)
                                                                         ==========       ==========


Net loss per common share                                                    ($1.82)          ($1.02)
                                                                              =====            =====

Weighted average number of common
   shares outstanding (Note 2)                                            2,731,386        1,828,609
                                                                          =========        =========

</TABLE>


                       See notes to financial statements.

                                       F-4




<PAGE>
 
<PAGE>



                 WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.

                 STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)


<TABLE>
<CAPTION>

                                        Common Stock
                                      ------------------                                      Total
                                      Number               Additional                      Stockholders'
                                        of                  Paid-in          Accumulated      Equity
                                      Shares      Amount    Capital           Deficit       (Deficiency)
                                      ---------   -------    ----------      ----------     ----------
<S>                                   <C>         <C>        <C>            <C>            <C>
Balance at December 31, 1994          1,170,000    $1,170    $   22,275     ($   58,579)   ($   35,134)

Common stock issued for
   cash ($3.33 per share)               180,000       180       599,820            -           600,000

Common stock issued for
   cash ($3.33 per share)                60,000        60       199,940            -           200,000

Common stock issued for
   cash ($5.25 per share) as
   a result of a public offer-
   ing less expenses of the
   offering of $1,118,914             1,150,000     1,150     4,917,436            -         4,918,586

Fair market value of warrant
   to acquire 163,404 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 $5.25 per share                      -         -          857,871              -         857,871

Net loss                                   -         -             -        ( 1,861,221)   ( 1,861,221)
                                      ---------    ------    ----------      ----------     ----------

Balance at December 31, 1995          2,560,000     2,560     6,597,342     ( 1,919,800)     4,680,102

Common stock issued to
   employees as compensation             11,000        11        32,989            -            33,000

Common stock issued in
   consideration of legal
   and consulting services               50,500        51       104,458            -           104,509

Fair market value of warrant
   to acquire 3,925 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 $3 per share                         -         -           11,775              -          11,775

Net loss                                   -         -             -        ( 4,978,127)   ( 4,978,127)
                                      ---------    ------    ----------      ----------     ----------

                                      2,621,500    $2,622    $6,746,564     ($6,897,927)   ($  148,741)
                                      =========    ======    ==========      ==========     ==========

</TABLE>

                       See notes to financial statements.

                                       F-5




<PAGE>
 
<PAGE>



                 WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                            For the Years Ended
                                                                                 December 31,
                                                                         ---------------------------
                                                                            1996             1995
                                                                         ----------       ----------
<S>                                                                     <C>              <C>         
Cash flows from operating activities:
   Net loss                                                             ($4,978,127)     ($1,861,221)
                                                                         ----------       ----------
   Adjustments to reconcile net loss to net
        cash used in operating activities:
     Depreciation and amortization                                          297,273           81,342
     Write-off of goodwill                                                  840,780             -
     Loss on impairment of bakery
        property and equipment                                              797,559             -
     Restructuring loss                                                     450,000             -
     Stock issued to employees                                               33,000             -
     Stock issued in consideration of services                              104,509             -
     Deferred rent                                                           45,394           23,207
     Compensatory element of issuance of warrants                           204,064          856,871
     Increase (decrease) in cash flows as
          a result of changes in asset and
          liability account balances:
        Accounts receivable                                             (    52,437)     (   222,623)
        Inventory                                                            16,631      (    51,631)
        Prepaid expenses and other current assets                       (    26,640)     (   100,532)
        Security deposits                                               (    38,336)     (    77,772)
        Other assets                                                           -               2,731
        Accounts payable                                                    446,901          387,630
        Accrued expenses and other current liabilities                      202,421           63,240
                                                                         ----------       ----------
   Total adjustments                                                      3,321,119          962,463
                                                                         ----------       ----------

Net cash used in operating activities                                   ( 1,657,008)     (   898,758)
                                                                         ----------       ----------

Cash flows from investing activities:

   Purchase of property and equipment                                   (   380,489)     (   371,197)
   Purchase of Greenberg Dessert Associates
     Limited Partnership, net assets                                           -         ( 2,073,500)
                                                                         ----------       ----------
Net cash used in investing activities                                   (   380,489)     ( 2,444,697)
                                                                         ----------       ----------

Cash flows from financing activities:
   Proceeds from sale of common stock and warrant                              -           5,719,586
   Proceeds from loan                                                          -           2,000,000
   Repayment of loan                                                           -         ( 2,000,000)
   Repayment of acquisition liabilities                                        -         (   155,700)
   Increase (decrease) in amount due to office/stockholder                   71,634      (    50,432)
                                                                         ----------       ----------
Net cash provided by financing activities                                    71,634        5,513,454
                                                                         ----------       ----------

Net increase (decrease) in cash and cash equivalents                    ( 1,965,863)       2,169,999

Cash and cash equivalents at beginning of year                            2,169,999             -
                                                                         ----------       ----------
Cash and cash equivalents at end of year                                 $  204,136       $2,169,999
                                                                         ==========       ==========

Supplemental Disclosures of Cash Flow Information:

   Cash payments for the year:

     Interest expense                                                    $    5,555       $  112,735
                                                                         ==========       ==========
     Income taxes                                                        $     -          $      161
                                                                         ==========       ==========

</TABLE>


                       See notes to financial statements.

                                       F-6




<PAGE>
 
<PAGE>



                 WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1996

NOTE 1 -    REALIZATION OF ASSETS - GOING CONCERN.

                     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.

                     During  the year  ended  December  31,  1996,  the  Company
            incurred a loss from  operations in the amount of  $2,713,113  and a
            net loss of  $4,978,127  and as at  December  31, 1996 had a working
            capital deficiency of $1,133,747. During the fourth quarter of 1996,
            the Company recorded a $450,000 charge for management's  estimate of
            the costs for actions aimed at restructuring the Company in order to
            reduce   operating   costs  and  enhance  the  Company's  focus  and
            efficiency.  The restructuring charge is predominately  comprised of
            costs associated with renegotiating  executive employment contracts,
            severance costs associated with the elimination of certain positions
            and provision for lease obligations on certain retail stores.

                     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  $797,559  was charged  and  included as part of
            other expenses in the  accompanying  statement of  operations.  Such
            impairment  loss  represents  the  excess of the  carrying  value of
            $1,647,559  over  management's  estimate of the fair market value of
            the assets of $850,000.

                     In addition,  management  has determined  that  unamortized
            goodwill  at December 31, 1996 of $840,780  which was recorded  upon
            the acquisition of the net operating assets of Greenberg's L.P., has
            no continuing value and,  accordingly,  was charged to operations in
            1996.

                                       F-7




<PAGE>
 
<PAGE>






NOTE 1 -    REALIZATION OF ASSETS - GOING CONCERN.  (Continued)

                     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
            $2,215,000  of which  $900,000  was  paid in cash and the  remaining
            $1,315,000  through the issuance of 500,000  shares of the Company's
            common  stock at fair market  value of $1.75 per share and  purchase
            warrants valued at fair market value of $1.10 per warrant to acquire
            400,000 shares of the Company's common stock at fair market value 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.

                     The  unaudited  pro forma effect to the  Company's  balance
            sheet  of the  Acquisition  and the  issuance  of the  common  stock
            purchase  warrants  (as if they had  occurred on December  31, 1996)
            would be to increase the  Company's  tangible net worth and decrease
            its working  capital  deficiency  to  approximately  $1,160,000  and
            ($207,000), respectively.

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

                     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 (i) the success
            of the restructuring of its New York City baking operations and (ii)
            cash  flows,  if any,  generated  from  JMS 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  or  the  amount  and   classification   of
            liabilities  that  might  result  should  the  Company  be unable to
            continue as a going concern.

                                       F-8




<PAGE>
 
<PAGE>



NOTE 2 -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.  (Continued)

            (a)   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.

            (b)   Use of Estimates:

                     The preparation of financial  statements in conformity with
            generally accepted accounting principles requires management to make
            estimates and assumptions  that affect certain  reported amounts and
            disclosures.  Accordingly,  actual  results  could differ from those
            estimates.

            (c)   Cash and Cash Equivalents:

                     The Company  considers all highly  liquid debt  instruments
            purchased  with a  maturity  of  three  months  or  less  to be cash
            equivalents.

            (d)   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  a  consequence,
            believes that its trade accounts  receivable credit risk exposure is
            limited.

            (e)   Inventory:

                     The inventory,  consisting principally of raw materials, is
            valued at the lower of cost (first-in, first-out method) or market.

            (f)   Property and Equipment:

                     Depreciation is computed on the  straight-line  method over
            the  estimated  useful  lives of the assets  which range from ten to
            fifteen years. Significant improvements are capitalized; maintenance
            and  repairs  are  charged to  income.  When  assets are  retired or
            otherwise disposed of, the cost and related accumulated depreciation
            are eliminated  from the accounts and the resulting gain or loss, if
            any, is reflected in income.  As discussed in Note 1 management  has
            determined  that  there has been an  impairment  to the value of its
            property  and  equipment  and has  accordingly  written them down to
            their net realized value.

                                       F-9




<PAGE>
 
<PAGE>



NOTE 2 -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.  (Continued)

            (g)   Intangibles:

                     The covenant  not to compete is amortized  over the term of
            the  agreement and goodwill is amortized  over its estimated  useful
            life of five years (See Note 4).

                     As  discussed  in  Note  1  the  Company's  management  has
            determined that the unamortized goodwill as at December 31, 1996 has
            no  continuing  value and  accordingly  it was charged to operations
            during the fourth quarter of 1996.

            (h)   Income Taxes:

                     At December 31, 1996,  the Company has a deferred tax asset
            of  $1,564,000   arising   primarily   from  a  net  operating  loss
            carry-forward of approximately $4,600,000 available to reduce future
            taxable income,  of which $1,950,000  expires in 2010 and $2,650,000
            expires in 2011.  Since  management  estimates that it is not likely
            that the Company  will be able to utilize  this asset in the future,
            it has been fully reserved.

            (i)   Per Share Data:

                     Net loss per share was  computed  by the  weighted  average
            number of shares outstanding during each period. The issuance of all
            common shares prior to October 12, 1995  (1,410,000  shares) and the
            assumed  conversion of a warrant into 167,329 shares of common stock
            have been retroactively  reflected in the computation as if they had
            occurred at inception.

NOTE 3 -    ACQUISITION OF GREENBERG DESSERT ASSOCIATES LIMITED PARTNERSHIP.

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

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

<TABLE>
            <S>                                                               <C>
            Assets purchased:
               Furniture, fixtures and leasehold improvements                 $1,130,000
               Inventories                                                        40,000
               Covenant not to compete                                           125,000
                                                                              ----------
                                                                               1,295,000

            Liabilities assumed:
               Note payable - bank                                            (  123,000)
               Rent payable                                                   (   32,700)
                                                                               ---------
            Net assets acquired                                                1,139,300
            Purchase price, including $73,500 of
               acquisition costs                                               2,073,500

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

</TABLE>


                                      F-10




<PAGE>
 
<PAGE>



NOTE 3 -    ACQUISITION OF GREENBERG DESSERT ASSOCIATES LIMITED PARTNERSHIP.
            (Continued)

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

                     The  Company  entered  in  consulting   and/or   employment
            agreements   with  a  partner   and  three   (3)  key   members   of
            Greenberg's-L.P. management (see Note 10).

                     In order to finance this acquisition,  on July 10, 1995 the
            Company obtained $2,000,000 from InterEquity Capital Partners, L.P.,
            ("InterEquity")  in  the  form  of  (i) an  amortizing  note  in the
            aggregate  amount of $1,999,000 (the  "Amortizing  Note") and (ii) a
            $1,000 note which was convertible into shares of common stock of the
            Company or a warrant to acquire  shares of the Company's  stock (the
            "Convertible  Note"  and  together  with the  Amortizing  Note,  the
            "Notes"). Interest on the Note was 14.5% per annum. The Company also
            paid  InterEquity  a  commitment  fee of  $50,000.  The  Notes  were
            collateralized by a security interest in all of the Company's assets
            as well as a collateral  assignment of all of the  Company's  leases
            and a pledge of an  aggregate  of  1,025,000  shares of common stock
            owned by the two founding  stockholders and the Company's President.
            The Amortizing  Note was payable on or prior to July 31, 2000,  with
            interest  only  for  the  first  12  months  and  48  equal  monthly
            installments  of  principal  and interest  commencing  July 31, 1996
            through June 30, 2000. The  Convertible  Note was payable in full on
            July 31, 2000 with interest only payable monthly commencing July 31,
            1995. This financing  agreement  allowed  InterEquity to convert the
            Convertible  Note into shares of the  Company's  capital  stock or a
            warrant  to  acquire  shares  of  stock of the  Company  in a number
            sufficient  to equal  up to 11% of the  Company's  then  outstanding
            preferred and/or common shares of stock.

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

                                      F-11




<PAGE>
 
<PAGE>



NOTE 3 -    ACQUISITION OF GREENBERG DESSERT ASSOCIATES LIMITED PARTNERSHIP.
            (Continued)

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

NOTE 4 -    ACQUISITION OF JMS SPECIALTIES, INC.

                     On January  23,  1997,  the Company  purchased  100% of the
            outstanding  common  stock of J.M.  Specialties,  Inc.  ("JMS") in a
            transaction  to be accounted for as a purchase (the  "Acquisition").
            The purchase price of $2,215,000  consisted of (i) $900,000 in cash,
            (ii)  500,000  shares of the  Company's  common stock valued at fair
            market value of $1.75 per share  (aggregating  $875,000),  and (iii)
            400,000  purchase  warrants valued at fair market value of $1.10 per
            warrant  (aggregating  $440,000)  to acquire  400,000  shares of the
            Company's  common stock at $2.50 per share.  The warrants are in the
            same form as those described below.

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

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

                     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
            of common stock of such entity (the "Subsidiary").  As a result, the
            Company  currently acts as a holding  company with two  wholly-owned
            subsidiaries,  JMS and the Subsidiary.  Subject to obtaining consent
            of the  Company's  stockholders,  the Company  intends to change its
            name  to  Food  Concepts,  Inc.,  a  name  more  descriptive  of its
            operations.

                                      F-12




<PAGE>
 
<PAGE>





NOTE 4 -    ACQUISITION OF JMS SPECIALTIES, INC.  (Continued)

                     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 at 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                                                     1,356,565
                                                                                   ----------

                                                                                   $2,303,000
                                                                                   ==========

</TABLE>

                                      F-13




<PAGE>
 
<PAGE>





NOTE 4 -    ACQUISITION OF JMS SPECIALTIES, INC.  (Continued)

                     The unaudited  consolidated condensed financial statements,
            on a pro forma basis,  as if JMS had been  acquired at the beginning
            of 1996 and 1995 are as follows:

            Unaudited Proforma Balance Sheets:

<TABLE>
<CAPTION>

                                          A S S E T S

                                                                     1996              1995
                                                                 -----------       ----------
<S>                                                              <C>               <C>       
            Current assets:
              Cash                                               $ 1,027,985       $3,304,437
              Accounts receivable                                    499,438          426,548
              Notes receivable                                        60,000          171,000
              Inventory                                              349,803          421,782
              Prepaid expense                                        141,235          140,447
                                                                 -----------       ----------
                                                                   2,078,461        4,464,214
                                                                 -----------       ----------
            Property and equipment                                 1,297,894        1,992,972
                                                                 -----------       ----------

            Other assets:
              Covenant not to compete                                 87,500          250,885
              Goodwill                                             1,266,127        2,188,461
              Security deposits                                      144,107          106,140
                                                                 -----------       ----------
                                                                   1,497,734        2,545,486
                                                                 -----------       ----------
                                                                 $ 4,874,089       $9,002,672
                                                                 ===========       ==========


                             LIABILITIES AND STOCKHOLDERS' EQUITY

<CAPTION>

                                                                     1996              1995
                                                                 -----------       ----------
<S>                                                              <C>               <C>       
            Current liabilities:
              Current portion of long-term debt                  $    16,999       $   63,019
              Notes payable bank                                      75,000          162,925
              Accounts payable and accrued expenses                1,677,643          991,396
              Estimated loss on restructuring                        450,000             -
                                                                 -----------       ----------
                                                                   2,219,642        1,217,340
                                                                 -----------       ----------
            Long-term debt, net of current portion                    75,209          145,860
                                                                 -----------       ----------

            Stockholders' equity:
              Common stock                                             3,156            3,094
              Additional paid-in capital                          10,126,444        9,977,222
              Accumulated deficit                               (  7,440,362)     ( 2,340,844)
                                                                 -----------       ----------
                                                                   2,689,238        7,639,472
                                                                 -----------       ----------
                                                                 $ 4,984,089       $9,002,672
                                                                 ===========       ==========

</TABLE>

                                      F-14




<PAGE>
 
<PAGE>




NOTE 4 -    ACQUISITION OF JMS SPECIALTIES, INC.  (Continued)

            Unaudited Proforma Statements of Operations:

<TABLE>
<CAPTION>

                                                                     1996              1995
                                                                 -----------       ----------
<S>                                                              <C>               <C>       
            Net sales                                            $ 7,442,509       $5,389,124
            Costs and expenses                                    10,169,754        6,105,108
                                                                 -----------       ----------

            Loss from operations                                (  2,727,245)     (   715,984)
            Other expenses (net)                                (  2,700,933)     ( 1,537,807)
                                                                 -----------       ----------

            Loss before extraordinary credit                    (  5,428,178)     ( 2,253,791)
            Extraordinary credit                                      31,375             -
                                                                 -----------       -----------

                                                                ($ 5,396,803)     ($2,253,791)
                                                                 ===========       ==========

            Pro forma per share data:
              Net loss per common share                               ($1.65)           ($.95)
                                                                       =====             ====
              Weighted average number of
                common shares outstanding                          3,265,471        2,362,694
                                                                   =========        =========

</TABLE>


NOTE 5 -    PROPERTY AND EQUIPMENT.

                     As mentioned in Note 1(a) the Company's  baking  equipment,
            furniture and fixtures and leasehold  improvements were deemed to be
            impaired  and  written  down to  managements  estimate of their fair
            value  at  December  31,  1996.   Fair  value,   was  determined  by
            management's  estimation  of the net  sales  value  if the  property
            assets were offered for sale.  An  impairment  loss in the amount of
            $797,559  was  charged to  operations  during the fourth  quarter of
            1996.

                     The following is a summary of property and equipment:

<TABLE>
<CAPTION>

                                                  As at December 31,
                                        -------------------------------------
                                                           1996                        1995
                                        --------------------------------------      ---------
                                         Historical     Impairment      Fair         Historical
                                           Basis          Loss          Value          Basis
                                        ----------     ----------     --------      ----------
<S>                                     <C>            <C>            <C>           <C>       
Baking equipment                        $  553,305     $  264,889     $288,416      $  522,127
Furniture and fixtures                     165,908        115,373       50,535          51,753
Leasehold improvements                   1,176,041        664,992      511,049         940,884
                                        ----------     ----------     --------      ----------
                                         1,895,254      1,045,254      850,000       1,514,764
Less:  Accumulated depreciation
         and amortization                  247,695        247,695         -             37,702
                                        ----------     ----------     --------      ----------

                                        $1,647,559     $  797,559     $850,000      $1,477,062
                                        ==========     ==========     ========      ==========

</TABLE>


                                      F-15




<PAGE>
 
<PAGE>




NOTE 6 -    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 1996 and $12,500 in 1995.

                     The  excess of cost over the fair  value of the net  assets
            acquired from Greenberg's L.P.  aggregated  $934,200.  This goodwill
            has been amortized over its estimated  useful life of fifteen years.
            Amortization  charged to operations in 1996 and 1995 was $62,280 and
            $31,140, respectively.

                     Continuing   operating  losses  has  caused  management  to
            reevaluate the goodwill acquired in the purchase of Greenberg's-L.P.
            In the first quarter of 1997,  management completed its reevaluation
            and  determined  that the goodwill had no  continuing  value and the
            unamortized  portion of $840,780  was charged to  operations  in the
            fourth quarter of 1996.

NOTE 7 -    SECURITY DEPOSITS.

                     Security  deposits are comprised of rent deposits  relating
            to various leaseholds which the Company occupies.

NOTE 8 -    DEFERRED RENT.

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

NOTE 9 -    CAPITAL STOCK.

            (a)   Common Stock:

                     The Company  issued  180,000  shares of its common stock in
            June 1995 to unrelated persons for $600,000 ($3.33 per share) which,
            in the opinion of the Board of Directors, was the then fair value of
            the common shares.

                     The  Company  received  on August 7, 1995 an  aggregate  of
            $200,000 for the issuance of 60,000 shares of the  Company's  common
            stock ($3.33 per share) which,  in the Board of  Directors'  opinion
            was the fair value of the common shares at the time of issuance.

                                      F-16




<PAGE>
 
<PAGE>



NOTE 9 -    CAPITAL STOCK.  (Continued)

            (a)   Common Stock:

                     In October  1995,  the Company  successfully  completed the
            initial  public  offering of its  securities for sale to the public.
            The  offering  resulted  in the  sale  of  1,115,000  shares  of the
            Company's  common stock at a price of $5.25 per share with  proceeds
            to the Company,  net of offering  costs of  $1,118,914,  aggregating
            $4,918,586.  The sale  resulted  in  additional  paid-in  capital of
            $4,917,436.   The  Company   and  its   directors,   officers,   and
            shareholders owning more than 5% of the Common Stock agreed with the
            representative  of the  Underwriter  not to directly  or  indirectly
            register,  issue,  offer,  sell,  offer to sell,  contract  to sell,
            hypothecate,  pledge,  or otherwise  dispose of any shares of Common
            Stock,  or  any  securities   convertible  into  or  exercisable  or
            exchangeable  for shares of Common Stock,  for a period of 12 months
            from the effective  date of the Company's  initial  public  offering
            without the prior written consent of the Underwriter.

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

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

            (b)   Warrants:

              (i)  Warrants Issued in 1995:

                     In  order  to  obtain  financing  for  the  acquisition  of
            Greenberg's-L.P.  (see Note 2), the  Company  sold to the lender for
            $1,000, a Convertible Note which in accordance with the terms of the
            conversion agreement,  was converted by the lender into a warrant to
            acquire  shares of stock of the  Company in a number  sufficient  to
            equal 6% of the  Company's  then  outstanding  preferred  and common
            stock (163,404 shares of common stock).  The warrant expires on July
            31, 2001. The warrant contains  anti-dilutive  provisions throughout
            its six (6) year life which  entitles  the holder to its  applicable
            percentages  of the Company's  capital stock on the date the warrant
            is exercised.  Based upon the issuance 61,500 shares of common stock
            during 1996, the lender is entitled to an additional 3,925 shares of
            common stock. Accordingly, the financial statements include a charge
            to operations of $11,775  which  represents  the market value of the
            stock  at the time the  61,500  common  shares  were  issued  by the
            Company.

                     In connection with the Company's  successful initial public
            offering of its securities,  the Company issued warrants for nominal
            consideration  to the  underwriter to acquire  100,000 shares of the
            Company's common stock at $6.30 per share.

                                      F-17




<PAGE>
 
<PAGE>




NOTE 9 -    CAPITAL STOCK.  (Continued)

            (b)   Warrants:

             (ii)  Warrants Issued in 1997:

                     As part of the  Acquisition,  the Company issued on January
            17, 1997, 350,000 warrants to JMS's former owner and 50,000 warrants
            to certain of it's employees.

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

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

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

                     The Company has the right to redeem the 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 at 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.

            (c)   Stock Options:

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

                                      F-18




<PAGE>
 
<PAGE>




NOTE 9 -    CAPITAL STOCK.  (Continued)

            (c)   Stock Options:

                     On  July 5,  1996,  the  Company  entered  into  an  option
            agreement  with a  consultant  pursuant  to which he was  granted an
            option to purchase 50,000 shares of the Company's common stock at an
            exercise  price of $2 per  share.  The  option is  exercisable  with
            respect to (a) 25,000 shares on August 4, 1996,  (b) with respect to
            the  remaining  25,000  shares after the  occurrence of a qualifying
            event as described in the consulting agreement.

                     On November 21, 1996,  25,000 options were exercised  which
            represented the value of the consultant's services whereupon $50,000
            was charged to operations as consulting expense.

NOTE 10 -   COMMITMENTS AND CONTINGENCIES.

            (a)   Leases:

                     The Company  leases  four (4) of its six (6) retail  stores
            and  its  commercial  baking  facility  under  five   non-cancelable
            operating leases which expire at various dates through May 2006. Its
            two (2) cafes which are located in Macy's are occupied pursuant to a
            license agreement described in Note 10(c).

                     During  March 1996,  the Company  entered  into a lease for
            retail  space  which will expire on March 31,  2006.  Due to lack of
            working  capital,  the  store  has been  vacant  since  the  lease's
            inception.  However, in March 1997,  management made the decision to
            open a store at this location. The Company has reserved $138,000 for
            losses on the lease which  represents six months rent of $88,000 and
            a write-off of the costs of obtaining the lease of $50,000.

                     The minimum future rental payments are as follows:

<TABLE>
<CAPTION>

                                Years Ending
                                December 31,
                                ------------
                              <S>                                       <C>
                                    1997                                $  561,195
                                    1998                                   581,628
                                    1999                                   444,108
                                    2000                                   376,235
                                    2001                                   338,438
                                 Thereafter                              1,933,987
                                                                        ----------
                            Total minimum future
                              rental payments                           $4,235,591
                                                                        ==========


</TABLE>

                                      F-19




<PAGE>
 
<PAGE>



NOTE 10 -   COMMITMENTS AND CONTINGENCIES.  (Continued)

            (b)   Employment and Consulting Agreements:

                     On July 10, 1995,  the Company  entered into an  employment
            agreement  with its then president for a term of five (5) years with
            a base  salary of  $100,000  for the first  year,  $125,000  for the
            second year of the term and $150,000  for each of the third  through
            fifth years of the term.  The Company also  entered into  employment
            agreements,  as of July 10,  1995,  with its then  Chairman  and its
            Chief  Executive  Officer for a term of three (3) years with each of
            the two receiving a base salary of $75,000 for the first year of the
            term,  $100,000 for the second year of the term and $125,000 for the
            third  year.  In addition  to the base  salary,  each of these three
            employees is entitled to receive an annual  performance  bonus equal
            to 5% of the  pre-tax  earnings,  as defined,  of the  Company  over
            $800,000.  Each of such employment agreements generally provide that
            the executive  will be entitled to a severance  payment equal to one
            year of that executive's  compensation in the event the executive is
            terminated other than for cause.

                     In connection with the  Greenberg's-L.P.  acquisition  (see
            Note 3), the  Company  entered  into  consulting  and/or  employment
            agreements  with one of the  partners  and three (3) key  members of
            management of  Greenberg's-L.P.  The  agreements run up to 30 months
            and  aggregate  $498,000 for each of the first two years and $46,500
            for the third period. On April 15, 1996, the Company's then chairman
            and chief  executive  officer's  employment  contract was terminated
            upon her resignation.  As settlement of her employment contract, the
            Company agreed to continue paying her monthly salary of $8,333 for a
            period of 16 months.

                     In order to supplement  its cash flow, in August 1996,  the
            Company reduced payments to all employees under contract by 50%. The
            unpaid  portion at December 31, 1996  aggregating  $212,385 has been
            accrued and will be paid at such time as the Company has  sufficient
            funds.

            (c)   License Agreement:

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

                                      F-20




<PAGE>
 
<PAGE>




NOTE 10 -   COMMITMENTS AND CONTINGENCIES.  (Continued)

                     As an  addendum  to the above  agreement,  during  1996 the
            Company opened a second cafe in the Macy's 34th Street store and has
            placed four (4) kiosks in various  Macy's  locations  outside of New
            York City. The additional locations all operate under the provisions
            of the original agreement described above. The aggregate license fee
            paid in 1996 was $62,549.

NOTE 11 -   RELATED PARTY TRANSACTIONS.

                     At December  31,  1994,  the  Company  was  indebted to the
            Company's  then  President,  Mr. Fass, in the amount of $50,432.  Of
            this  amount,  $35,000  pertained to a verbal  consulting  agreement
            whereby Mr. Fass had agreed to perform  consulting  services for the
            Company at a rate of $5,000 per month effective June 1, 1994 and the
            balance of $15,432 is for expenses incurred by the Company which Mr.
            Fass  personally  paid on behalf of the  Company.  Through  June 30,
            1995, Mr. Fass earned additional consulting fees of $30,000 and paid
            additional  costs and expenses  incurred on behalf of the Company of
            $24,933,  which  increased  the amount  owed to Mr. Fass to $105,365
            which was repaid in full. On July 10, 1995, the Company entered into
            an employment  agreement  with Mr. Fass for a term of five (5) years
            (See Note 10).

                     On February 8, 1996,  the  Company  made an 6.75%  interest
            bearing  unsecured  loan in the amount of  $212,500 to the spouse of
            Willa Abramson who was the Company's Chairman. On April 5, 1996, the
            loan with accrued  interest was repaid.  In March 1996,  Ms Abramson
            pledged 400,000 shares of the Company's common stock owned by her as
            collateral  for a loan which  matures  in March  1997.  Ms  Abramson
            resigned as the  Company's  Chairman,  Chief  Financial  Officer and
            Secretary on April 15, 1996 at which time the Company's former Chief
            Executive  Officer,   Maria  Marfuggi,   assumed  these  duties  and
            positions.

                     Upon consummation of the Company's initial public offering,
            persons   associated   with  the   representative   of  the  several
            underwriters, who purchased a $350,000 participation interest in the
            InterEquity  $2,000,000  term loan obtained in  connection  with the
            acquisition of Greenberg's-L.P.,  received through the conversion of
            the Convertible Note, a 17.5%  participation  interest in a six-year
            warrant to purchase 6% of the then issued and outstanding  shares of
            the  Company on a fully  diluted  basis.  Upon  consummation  of the
            offering,  Joel L. Gold,  a Director  of the  Company and a managing
            director of the Underwriter, received a 5% participation interest in
            a six-year  warrant to acquire 6% of the  Company's  then issued and
            outstanding  capital  shares at the time of  exercise.  Mr. Gold has
            since  resigned  as a  director  of the  Company  and  is no  longer
            associated with the underwriter.

                                      F-21




<PAGE>
 
<PAGE>



NOTE 12 -   PRO FORMA AND SEGMENT DATA.

                     Since its inception  through July 10, 1995, the Company had
            not  generated  any  revenues  and did not carry on any  significant
            operations.   Upon  the  acquisition  of  the  operating  assets  of
            Greenberg's-L.P.  on July 10,  1995,  the Company  emerged  from the
            development  stage.   Accordingly,   the  historical  statements  of
            operations  included  herein  include  retail and  wholesale  baking
            operations  from July 10,  1995.  Assuming the  operating  assets of
            Greenberg's-L.P.  were  acquired at January 1, 1995,  the results of
            operations for the year ended December 31, 1995 on a pro forma basis
            would have been as follows:

<TABLE>

<S>                                                                     <C>
                       Net sales                                        $3,167,838
                                                                        ----------
                       Cost of sales                                     2,189,025
                       Selling, general and
                         administrative expenses                         1,968,507
                                                                        ----------

                                                                         4,157,532
                                                                        ----------

                       Loss from operations                            (   989,694)
                       Other expenses                                      958,637
                                                                        ----------

                       Net loss                                        ($1,948,331)
                                                                        ==========

                       Loss per common share                                ($1.07)
                                                                             =====
                       Weighted average number of
                         common shares outstanding                       1,828,609
                                                                        ==========

</TABLE>

                     The Company's  operations are classified into two segments,
            retail  and  wholesale.  The  following  is a summary  of  segmented
            information  for the year  ended  December  31,  1996 and 1995.  The
            information  for 1995 is on a pro forma  basis  which  reflects  the
            purchase of the business of  Greenberg's-L.P.  as if it had occurred
            on January 1, 1994.

<TABLE>
<CAPTION>

                                                                 For the Years Ended
                                                                     December 31,
                                                             ---------------------------
                                                              1996             1995
                                                             ----------       ----------
                                                            (Actual)        (Pro Forma)
<S>                                                          <C>              <C>       
            Operating data:
              Net sales:
                Retail                                       $2,912,730       $2,160,567
                Wholesale                                     1,319,886        1,007,271
                                                             ----------       ----------

                                                             $4,232,616       $3,167,838
                                                             ==========       ==========

            Loss from operations:
              Retail                                        ( 1,674,589)     (   678,998)
              Wholesale                                     (   994,079)     (   310,696)
                                                             ----------       ----------
                                                            ( 2,668,668)     (   989,694)
            General corporate expenses                      ( 2,309,459)     (   958,637)
                                                             ----------       ----------

            Net loss                                        ($4,978,127)     ($1,948,331)
                                                             ==========       ==========

<CAPTION>

                                                            December 31,
                                                                1996
                                                             ----------
<S>                                                          <C>       
            Balance sheet data:
              Identifiable assets - retail                   $  861,297
              Identifiable assets - wholesale                   179,586
                                                             ----------
                                                              1,040,883
            General corporate assets                            694,093
                                                             ----------
            Total assets                                     $1,734,976
                                                             ==========

</TABLE>

                                      F-22




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NOTE 13 -   SUBSEQUENT EVENTS.

                     Reference is made to Note 4 in regard to the Acquisition of
            JMS on January 17, 1997 for cash and the Company's  securities.  The
            cash portion of the  purchase  was  obtained  through the use of the
            proceeds from the sale in January 1997 of the Placement Warrants.

                     On March 20, 1997,  the Company  entered into an employment
            contracts with the former owners of a Company that produced  low-fat
            and fat-free  cookies.  Pursuant to the contracts,  both individuals
            received a signing bonus aggregating $59,000 and will each receive a
            salary  of  $25,000  per  annum  with  an  opportunity  to  earn  an
            additional $50,000 each based on sales performance. In addition both
            individuals  will be entitled to warrants to acquire an aggregate of
            50,000 shares of the Company's  common stock in the event that sales
            volume exceeds $750,000 per annum.

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

                     On March 28, 1997 an aggregate  of 34,000  shares of common
            stock  were  issued  to  the  Company's  attorney  and  a  financial
            consultant for services rendered in connection with the Acquisition.

                     Pursuant to the  anti-dilutive  provisions  of its warrant,
            InterEquity  is entitled to receive  31,915  shares of the Company's
            stock and a warrant to acquire an additional 117,989 shares at $2.50
            per share. The issuance of the shares and the warrant to InterEquity
            will result in a charge to operations of $500,792.

                     As of April 1, 1997,  persuant to  settlement  discussions,
            the  employment  of Stephen  Fass, a director  and  President of the
            Subsidiary,  Maria  Marfuggi,  a director and  President of JMS, and
            Seth  Greenberg,  President  of the  Subsidiary's  baking  division,
            terminated. At the present time, the respective parties have not yet
            concluded their settlement  discussions.  Management intends to seek
            an amicable  settlement  with the named  parties as a result of such
            terminations;  however, each of the named parties have an employment
            agreement with the Company.  No contingency loss has been charged to
            operations  insofar  as  counsel  does not know  the  extent  of the
            liability, if any, to the Company.

                     During the period from January 1997 through  March 1997 six
            (6) of the Company's  vendors have each commenced actions which seek
            payment  of  delinquent   accounts  payable   balances   aggregating
            approximately  $80,000.  The Company is  attempting  to settle these
            matters  without  litigation,  however,  there  has  been  no  final
            settlements to date.

                                      F-23


                             STATEMENT OF DIFFERENCES
                             ------------------------
                The trademark symbol shall be expressed as......'tm'



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