SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K/A


                  Annual report pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                  For the fiscal year ended December 31, 1997.
                         Commission file number 0-19409

                               SYNERGY BRANDS INC.

                         (FORMERLY KRANTOR CORPORATION)
             (Exact name of registrant as specified in its charter)

                               DELAWARE 22-2993066
                    (State of incorporation) (I.R.S. Employer
                               Identification No.)


                            10850 Perry Way, Ste 203
                              Wexford, Penna. 15090
                    (Address of principal executive offices)

        Registrant's telephone number, including area code: 412-980-6380

             Securities registered pursuant to Section 12(b) of the
                                      Act:


                      Title of Each Class Name of Exchange

              Common Stock, $.001 par value NASDAQ/Small-Cap System
                            and Boston Stock Exchange


     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes_X_ NO__

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [X]

     On July 22, 1998, the aggregate market value of the voting stock of Krantor
Corporation,  held by  non-affiliates  of the  Registrant  (based on the closing
price as reported  on the NASDAQ for July 22,  1998)  approximately  $8,151,733.
This   determination  of  affiliate  status  is  not  necessarily  a  conclusive
determination  for  other  purposes.  The  number of  outstanding  shares of the
Registrant's Common Stock as of July 22, 1998 was 5,215,444.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy  Statement for  Registrant's  1997 Annual  Meeting of
Stockholders  held June 19, 1998 are  incorporated by reference in Part III (for
other documents incorporated by reference -refer to Exhibit Index at page )

<PAGE>

                                     PART I

     Other  than  historical  and  factual  statements,  the  matters  and items
discussed  in this  report on Form  10-K are  forward-looking  information  that
involves  risks and  uncertainties.  The  Company's  actual  results  may differ
materially from the results discussed in the forward-looking statements. Factors
that could contribute to such  differences are discussed in the  forward-looking
statements  and are  summarized  in  "Management's  Discussion  and  Analysis of
Financial Condition and Results of Operations - Forward-Looking  Information and
Cautionary Statements."

ITEM 1.  BUSINESS

A.       OVERVIEW

     Krantor Corporation  ("Krantor")through its subsidiaries  (collectively the
"Company")  participates  mainly in the food and  grocery  and health and beauty
aids,  frozen squid  distribution  and premium  handmade cigar and other related
tobacco  product  distribution  industries.  Trade  sources  estimate  that this
industry  generates  annual  nationwide  revenues of over $400  billion and $1.3
billion  respectively.  The  Company,  estimates  that  80% of its  business  is
generated in the Northeastern region of the United States.

     The Company  entered the premium  handmade  cigar market at the end of 1997
through a  Distributorship  Agreement  with a Dominican  Republic  Company.  The
Company  believes  that  distributing  premium  handmade  cigars to its existing
customer base through  regional  sales  offices,  a national  broker network and
cable television  marketing should develop for the Company a unique franchise in
the premium handmade cigar business.

     Presently  the Company is conducting  its basic  grocery  business with the
assistance of Asia Legend Trading Ltd. ("ALT"),  a Chinese trading entity who is
acting in the United States through its US Agent (the  "Agent"),  which business
has been  reinforced  and the  Company  believes  strengthened  by their 10 year
exclusive  U.S.  distribution  agreement  with ALT. The agreement  calls for the
Company  to  distribute  frozen  squid,  also  known  as  calamari,   a  product
significantly  marketed by ALT,  exclusively in the United  States.  ALT through
Agent also assists the Company in financing  the purchase and marketing of other
grocery products offered by ALT and from other traditional  suppliers located by
the  Company  and with whom the Company has  historically  done  business.  This
agreement  with ALT provides the Company with the  opportunity to earn royalties
on both squid and other grocery sales  distributed in the United States. It also
allows the Company to utilize the purchasing power and financing capabilities of
ALT & Agent to support the distribution of products by the Company in the United
States.  In addition,  the Chinese trading company is developing  products to be
marketed by the Company in the United  States.  Sales of calamari by the Company
on behalf of its  Chinese  trading  partner  provide  for above  average  profit
margins due to the Company's resultant direct buying presence in China.

     The Company plans on expanding its core grocery and frozen  seafood  market
through  its  subsidiaries.  The  Company  believes  that by  discontinuing  the
previous  Kosher  food  sale  and  distribution  operation  of  its  subsidiary,
Affiliated Island Grocers d/b/a Island Frozen and Diary ("IFD") it should enable
it to support the capital  requirements of its continuing  operations.  However,
the  Company  believes  it  will  need  additional  financing  in  the  form  of
subordinated  debt or equity to finance its expansion plans. The Company prefers
to use debt  financing to expand its business but must  currently rely on equity
financing   until  the  Company  may  be  able  to  establish   trade  financing
alternatively for its business. (See Management Discussion, Item 6).

     IFD has ceased  functioning  as an active  subsidiary  of the Company.  The
Company  has  terminated  its  Kosher  Foods and  Specialty  Foods  business  as
previously   operated  by  IFD,  has  significantly   curtailed  its  wholesaler
operations  in  general,  and is  attempting  to  re-focus  its  business to its

                                      -2-

<PAGE>

traditional business as a Promotional Grocery Product distributor, together with
its expansion into  distribution,  presently on an agency basis, of frozen squid
through agreements with the Company's established Chinese distribution agreement
with ALT (see "Chinese  Distribution  Agreement" and "Management  Discussion and
Financial Analysis" infra) and its acquisition and resale and/or distribution of
premium  hand made  cigars  and other  related  tobacco  products  derived  from
contacts of the Company in the Dominican  Republic.  Such  businesses of Krantor
are conducted through corporate  subsidiaries  whose stock is wholly or majority
owned by  Krantor,  and the results of whose  businesses  are  consolidated  for
reporting purposes with the financial statements of Krantor.

THE  COMPANY'S  EXECUTIVE  OFFICES  ARE LOCATED AT 10850  PERRY WAY,  STE.  203,
WEXFORD , PENNSYLVANIA 15090, AND ITS TELEPHONE NUMBER IS (412) 980-6380.

B.       CIGAR PRODUCTION AND SALE

         1.  DISTRIBUTION RIGHTS

     The Company,  through one of its subsidiaries  (the  "Affiliate"),  entered
into an  exclusive  distributorship  agreement  dated  December  31,  1997  (the
"Distribution  Agreement") with Fabrica De Tobacco Valle Dorado, SA, a Dominican
Republic corporation (the "DR Company") for the sale and distribution of premium
hand  made  cigars  manufactured  in and from  tobacco  grown  in the  Dominican
Republic. The Affiliate has the right to retain 50% of the profits from the sale
of the  premium  handmade  cigars  and  will  have  discretion  as to  marketing
strategies.  The DR Company  owns and/or  exclusively  leases,  for at least the
period of the Distribution Agreement,  sufficient land and factory facilities in
the  Dominican  Republic  capable of  producing  premium  hand-made  cigars at a
capacity of at least 500,000 cigars per month. The Affiliate will have the right
to sell the premium  handmade  cigars under the several brand names developed to
date by the DR  Company,  as well as the right to sell brands  developed  by the
Affiliate to fit market niches which it may locate.  The Distribution  Agreement
is for a term of 25 years  with an option for a second 25 years,  for  worldwide
distribution to locations directed by the Affiliate.  The DR Company,  which has
shipped over  1,000,000  cigars to the United States since January 1, 1997,  has
present tobacco inventory on hand to produce approximately 3,500,000 cigars. The
cigars  presently  marketed by the DR Company range from hand made short fillers
that retail  around  $2.00 each to premium  hand-made  long  filler  cigars that
retail as high as $6.00 each. Under the terms of the Distribution  Agreement the
Affiliate  is to pay the DR  Company  for the  cigars  at cost and to split  the
profit derived from their resale.  In addition,  the Affiliate is to advance the
costs  needed  for the sale,  promotion,  marketing,  advertising,  shipping  to
customers and all applicable  taxes,  and would be responsible for exhibition of
the goods at trade shows and other advertising shows and publicity vehicles, all
of which  expenses  would be  deducted  as costs,  together  with other costs of
goods,  including but not limited to delivery  expense,  distribution,  selling,
marketing, tobacco taxes and excise taxes, before arriving at the "profit" to be
split.  Management of the Company believes that the Company's historical inroads
into  the  consumer  goods  distribution   network  will  provide   advantageous
opportunity for establishment  and enhancement of distribution  channels for the
cigars.  There  can be, of  course,  no  assurance  that the  Affiliate  will be
successful in marketing  cigars,  especially in view of the various risk factors
discussed herein.

                                      -3-

<PAGE>
         2.  CIGAR PRODUCTION

     According to statistics compiled by The Cigar Insider, a recognized written
source of authority,  the Dominican  Republic  produces and exports more premium
handmade  cigars into the United States than any other country in the world.  It
has a strong lead over all other cigar exporting nations, with nearly 50% of the
market.  Industry  experts rate cigars  manufactured  in the Dominican  Republic
third in the world in quality, trailing only those from Cuba and Jamaica.

     Cuban cigars  cannot be exported  into the United States as a result of the
1962 trade embargo. Neither the Company nor any of its wholly-owned subsidiaries
currently distribute or engage in any transactions involving Cuban cigars or any
other  products of Cuban origin.  Removal of the trade embargo and the resultant
distribution  of Cuban  cigars  into the  United  States  could  have a material
adverse  effect on the  prospective  business for the  Affiliate and thereby the
Company.

         3.  COMPETITION

     The cigar  distribution  industry is  dominated  by a small number of large
companies  which are well known to the public.  Management  believes  that, as a
distributor of premium handmade cigars,  the Affiliate will compete with a small
number of primarily regional distributors,  including Southern Wine and Spirits,
Specialty Cigars, Inc., Cohabico and Old Scottsdale Cigar Company, Inc. and many
other small tobacco  distributors  and jobbers.  A number of larger,  well-known
cigar  manufacturing  and  wholesale  companies,   along  with  major  cigarette
manufacturers,  have not yet  entered  the  retail  distribution  market  to any
appreciable  degree,  but may do so in the future.  Such  potential  competitors
include  JR  Cigar  Company,  Inc.,   Consolidated  Cigar  Corporation,   Culbro
Corporation,  General Cigar Company, Swisher International Inc., Caribbean Cigar
Company and US Tobacco.  Many  existing and  potential  competitors  have larger
resources than the Company and would, if they enter the premium  handmade cigars
distribution  market,   constitute  formidable  competition  for  the  Company's
business.  There can be no assurance that the Company will compete  successfully
in any market.

         4. GOVERNMENTAL REGULATION AND TOBACCO INDUSTRY LITIGATION

     GENERAL.  The tobacco industry in general has been subject to regulation by
federal,  state  and local  governments,  and  recent  trends  have been  toward
increased regulation. Regulations include labeling requirements,  limitations on
advertising and prohibition of sales to minors,  laws  restricting  smoking from
public places including offices, office buildings,  restaurants and other eating
establishments.  In addition, cigars have been subject to excise taxation at the
federal,  state and local  level,  and those  taxes may  increase in the future.
Tobacco  products  are  especially  likely to be subject to  increases in excise
taxation. Future regulations and tax policies may have a material adverse affect
upon the ability of cigar companies,  including the Company, to generate revenue
and profits.

     HEALTH  REGULATIONS.  Cigars,  like other tobacco products,  are subject to
regulation in the United States at the federal, state and local levels. Together
with changing public attitudes toward smoking,  a constant  expansion of smoking
regulations  since the  early  1970s  has been a major  cause for a  substantial
decline in consumption.  Moreover,  the trend is toward increasing regulation of
the tobacco industry.

                                      -4-

<PAGE>
     FEDERAL REGULATION. In recent years, a variety of bills relating to tobacco
issues have been  introduced  in the  Congress of the United  States,  including
bills that have prohibited the advertising and promotion of all tobacco products
and/or restricted or eliminated the deductibility of advertising expenses;  have
set a  federal  minimum  age of 18  years  for  use of  tobacco  products;  have
increased  labelling  requirements on tobacco  products to include,  among other
things,  addiction  warnings and lists of additives  and toxins;  have  modified
federal  preemption  of  state  laws to  allow  state  courts  to  hold  tobacco
manufacturers  liable  under  common  law or state  statutes;  and have  shifted
regulatory  control of tobacco products and  advertisements  from the FTC to the
FDA.

     EPA LITIGATION.  The U.S.  Environmental  Protection Agency (the "EPA") has
recently  published a report with respect to the respiratory  effects of passive
smoking,  which  report  concluded  that  widespread  exposure to  environmental
tobacco smoke presents a serious and substantial public health impact.

     FDA  REGULATION.  The FDA has  proposed  rules to regulate  cigarettes  and
smokeless  tobacco  in order to protect  minors.  Although  the FDA has  defined
cigarettes  in such a way as to  include  little  cigars,  the  ruling  does not
directly impact large cigars.  However,  once the FDA has  successfully  exerted
authority  over  any  tobacco  product,  the  practical  impact  may be  felt by
distributors and manufacturers of any tobacco product. If the FDA is successful,
this may have long-term repercussions on the larger cigar industry.

     STATE REGULATION.  In addition, the majority of states restrict or prohibit
smoking in certain  public  places and restrict the sale of tobacco  products to
minors. Places where the majority of states have prohibited smoking include: any
public building  designated as non-smoking;  elevators;  public  transportation;
educational  facilities;  health care  facilities;  restaurants  and workplaces.
Local legislative and regulatory bodies have also increasingly  moved to curtail
areas. In a few states,  legislation has been introduced which would require all
little cigars sold in those states to be "fire-safe" little cigars, i.e., cigars
which extinguish themselves if not continuously smoked.  Passage of this type of
legislation and any other related  legislation  could have a materially  adverse
effect on the Company's cigar business.

     TOBACCO  INDUSTRY  LITIGATION.  Historically,  the cigar  industry  has not
experienced  material  health-related  litigation.  However,  litigation against
leading United States cigarette  manufacturers seeking compensatory and, in some
cases,  punitive  damages for cancer and other  health  effects  alleged to have
resulted from cigarette smoking is pending and being processed.

     PROPOSED SETTLEMENT WITH STATES. Several states have sued tobacco companies
seeking to recover the monetary  benefits paid under Medicaid to treat residents
allegedly  suffering  from  tobacco-related  illnesses.  On June 20,  1997,  the
Attorneys  General of 40 states and the major United  States  tobacco  companies
announced a proposed  settlement of the  litigation,  which,  if approved by the
United  States  Congress,  would require  significant  changes in the way United
States cigarette and tobacco  companies do business.  The potential  impact,  if
any, on the cigar industry is uncertain,  especially in view of the fact that it
is not certain as to what the final terms of the  settlement  will be even as to
cigarettes.  However, the potential limitations on advertising, the distribution
of  anti-nicotine  literature  and the  limitations  on  smoking  areas are just
examples of  provisions  which  could,  if adopted,  adversely  impact the cigar
industry and thus the operations of the Company in this industry.

                                      -5-

<PAGE>


     CLASS ACTIONS. There have been various class actions instituted against the
tobacco  companies  relating to  cigarette  smoking,  certain of which are still
pending.  Although  management  does not  believe  that any of the  deciding  or
pending  actions  will have a material  adverse  effect on the  Company's  cigar
business, there can be no assurance that management's evaluation will be correct
as this litigation evolves.  Although there are numerous differences between the
cigar and  cigarette  industries,  the outcome of pending  and future  cigarette
litigation  may  encourage  various  parties to bring  suits on various  grounds
against  cigar  industry  participants.  While it is impossible to quantify what
effect, if any, any such litigation may have on the Company's operations,  there
can be no  assurance  that such  litigation  would not have a  material  adverse
effect on its operations.

     OSHA REGULATION. The Occupational Safety and Health Administration ("OSHA")
has proposed an indoor air quality regulation  covering the workplace that seeks
to  eliminate  nonsmoker  exposure to  environmental  tobacco  smoke.  Under the
proposed  regulation,  smoking  must be banned  entirely  from the  workplace or
restricted to designated areas of the workplace that meet certain criteria.  The
proposed  regulation  covers all  indoor  workplaces  under  OSHA  jurisdiction,
including,  for  example,  private  residences  used as  workplaces,  hotels and
motels, private offices,  restaurants, bars and vehicles used as workplaces. The
tobacco   industry  is  challenging  the  proposed  OSHA  regulation  on  legal,
scientific and practical grounds.  It also contends that the proposed regulation
ignores  reasonable  alternatives  . There is no  guaranty,  however,  that this
challenge  will be  successful.  Although  management  does not believe that the
proposed  OSHA  regulation  would  have a material  adverse  effect on the cigar
industry or the Affiliate,  there can be no assurance that such regulation would
not adversely impact the Company's business.

C.       CHINESE DISTRIBUTION AGREEMENT

     The Company in the last quarter of 1996  entered  into a 10 year  exclusive
agreement with a Chinese  trading  company (Asia Legend Trading Ltd.  ("ALT") to
distribute  frozen  squid (also known as  calamari)  in the United  States (also
being non-exclusive  elsewhere) and market other grocery products offered by ALT
and traditionally  distributed by the Company.  In such agreement and under such
arrangement as provided therein, the Company acts as a distribution source (on a
licensing/royalty  independent contractor basis) for the Chinese trading company
and seeks to expand the demand for products  offered by such Chinese  company in
the United States,  including  primarily  squid,  but also for other seafood and
grocery items marketed by such Chinese company.  In return for such services the
Company is given a royalty on product sales and,  further,  such Chinese trading
partner  has  agreed to and has  significantly  finance  the  operations  of the
Company,   through   subsidiaries   where  provided,   in  their  marketing  and
distribution  of brand name  grocery and health & beauty aid products for direct
benefit  of the  Company  in  addition  to sale of  products  on  behalf of ALT,
Currently the Company distributes squid in the Northeastern United States, which
is  presently  the largest U.S.  market area for such  product.  Gross  Revenues
related to product sales related to the Chinese  Distribution  Agreement are not
reported by Krantor.  Krantor's  revenues are the royalties  derived through the
sales  generated  by the  distribution  agreement  and  other  lesser  financial
benefits derived therefrom.

     The royalty  arrangement has since the latter part of 1997 been modified to
emphasize the financing by ALT and Agent of product purchases by the COmpany and
distribution  and resale of such  products  by Agent to a network  of  customers
introduced  to them by the  COmpany.  Agent pays to the Company the  acquisition
cost of the Company  from the product  manufacturers  and retains the profits on
resale.  The Company then collects the  promotional  rebates  applicable to such
re-distributed  products  from  the  manufacturer.  (see  "Recent  Developments,
infra")

                                      -6-

<PAGE>
D.       PROMOTIONAL DISTRIBUTION BUSINESS

         1.       BACKGROUND

     Since 1989,  the  Company has been a  distributor  of  Promotional  Grocery
Products.  Industry  sources  estimate  that  the  sale of  Promotional  Grocery
Products  generates annual revenues of approximately  $40 billion.  In 1995, the
Company generated  approximately 77% of its gross revenues from the distribution
of Promotional  Grocery  Products.  This business is a part of the approximately
$40 billion promotional grocery distribution industry,  which is a subset of the
approximately $400 billion food distribution  industry.  The Promotional Grocery
Products  business  involves the  purchase of  Promotional  Grocery  Products at
deeply discounted prices.  The companies  operating in this business are able to
purchase   Promotional   Grocery  Products  only  when   manufacturers   provide
promotional allowances as an inducement to promote particular products.


         2.       PROMOTIONAL DISTRIBUTION BUSINESS MERCHANDISING AND SALES

     Promotions  offered by  manufacturers  of Grocery  Products play a critical
role in the  success of the  Company's  promotion  distribution  business.  Such
promotions are offered by manufacturers who wish to increase consumer  awareness
of their products in certain markets.  Promotions offered on favorable terms are
keyed into the Company's information system network and members of the Company's
sales  staff then offer the  discounted  brand-name  products  to their  various
customer  accounts  in order to  collect  promotional  rebates  and  other  cash
incentives offered by the manufacturers . All purchases of Promotional  Products
will be handled by representatives of ALT. The Company purchases the products to
a significant  extent directly from the manufacturer and resells the products to
sources  which would qualify such sales for receipt of the  promotional  rebates
and other cost  incentives  offered by the  manufacturers.  The vast majority of
such  product  sales by the Company  beginning  in the last quarter of 1997 have
been made to and through Agent under the Distribution Agreement arrangement with
ALT,  with the  Company  maintaining  the rights to  receipt  of all  applicable
manufacturer  promotional  rebates as its source of income  from such sales (see
"Recent Developments" infra)

         3.       PROMOTIONAL DISTRIBUTION BUSINESS - TRUCKING, WAREHOUSE, AND
                  INSURANCE

     The Company does not own its trucks and is dependent on common  carriers in
the trucking industry. Although the Company can call upon any of several hundred
common  carriers to  distribute  its  products.  From time to time the  trucking
industry  is subject to strikes or work  stoppages,  which could have a material
adverse effect on the Company's  operations if alternative modes of shipping are
not then available.  Additionally,  the trucking  industry is subject to various
natural  disasters which can close  transportation  lanes in any given region of
the country.  To the extent  common  carriers are  prevented  from or delayed in
utilizing  local  transportation  lanes,  the Company  will likely  incur higher
freight costs due to the limited  availability  of trucks during any such period
that transportation  lanes are restricted.  All trucking and warehousing will be
handled by representatives of ALT.

     The  Company  generally  purchases  Promotional  Grocery  Products  for its
promotional  business  in  truck-load  quantities  to take  advantage  of better
pricing  from the  supplier  and lower  freight  costs.  The  Company's  traffic
department   then  arranges  for   transportation   of  the  product  through  a
computerized network of several hundred independent truckers coordinated through
its warehouse  operation.  The Company does not foresee  difficulty in arranging
additional trucking if it increases its business volume. All purchases, shipping
and warehousing is transacted through the Chinese distribution  agreement and is
handled by representatives of ALT. The Company has arranged for warehousing when
and  where  necessary,  on a  contract  basis  and has  thereby  eliminated  the
existence of and need for centralized warehousing.

                                      -7-

<PAGE>
         4.       PROMOTIONAL DISTRIBUTION BUSINESS - COMPETITION

     The  Promotional  Products  business  is a highly  competitive,  fragmented
business which,  as noted above,  generates  approximately  $40 billion in gross
revenues.  On a national  level,  the Company  does not believe  that any single
wholesaler or retailer has a significant percentage of market share. The Company
competes with a large number of wholesalers and retailers in the industry,  many
of whom have substantially  greater financial resources than the Company.  These
competitors  are able to make larger  volume  purchases  and can finance  larger
inventories than the Company. Moreover, some of these competitors will sometimes
receive preferential notice of product promotions prior to the Company.

     The  Company  seeks  to  compete  in  the  Promotional   Grocery   Products
distribution  industry  primarily on the basis of price and service.  Because of
its experienced sales force and its information systems network,  the Company is
generally able to carefully price its purchases,  thereby  offering  products at
competitive  prices.  All sales of  promotional  grocery and Squid products flow
through the Distribution Agreement and are supervised by representatives of ALT.


E.       SEASONALITY

     Seasonality  affects  the demand for  certain of the  products  sold by the
Company such as juice drinks in the summer months or hot cereals in the fall and
winter  months;  however,  all  these  products  are  available  to the  Company
throughout the year.  Manufacturers also tend to promote more heavily toward the
close of their fiscal  quarters  and during the spring and early summer  months.
Accordingly,  the  Company  is  able  to  purchase  more  product  due to  these
promotions.  The Company generally  experiences lower sales volume in the fourth
quarter  due to the  reduced  number of  selling  days  resulting  from the high
concentration of holidays in that quarter.

     Seasonality  also  affects  the squid  market  (and  seafood in general) of
products  originating in China.  Because of time and locality  differences,  the
optimum  timing for catching the seafood and the most popular  times for re-sale
in the United States differ  significantly and such requires that the seafood be
delivered and stored frozen, in many cases for a significant time. Purchases and
sales are likely to be affected thereby.

F.       EXPANSION STRATEGY

     Krantor  plans to expand its core grocery and frozen  squid market  through
its ten year distribution agreement with its Chinese trading partner. Subject to
available  financing,  the Company  plans to expand its  continuing  business by
merchandising  readily marketable  promotional brand grocery products and frozen
seafood and selling these goods to its customer base.


     In the second half of 1996,  Krantor enhanced its expansion into the frozen
squid  business  and has seen such segment of its  business  grow  significantly
since. As a result of this expansion,  the Company believes it can obtain better
margins on its sales of frozen seafood products.

     Management's plans are to focus on growth through internal operations.  The
Company  believes  that  internal  sales  growth of at least 20  percent  can be
achieved over the next five years.  The existing sales force can continue to add
new customers to its base, in addition to increasing sales volume to existing

                                      -8-

<PAGE>

customers.  The  Company  plans to expand  its  sales  territory  by  recruiting
additional  qualified sales personnel and  establishing a broker network for its
premium handmade cigars business.

G.       TRADEMARKS, LICENSES AND PATENTS

     The  Company  does not  utilize  any  copyrights,  trademarks,  licenses or
patents in its  business.  The Company has  obtained a wholesale  pharmaceutical
license through the New York State Department of Education,  but to date has not
utilized it. Through its distribution  agreements,  the Company has US rights to
the "Tenda"  "Picolo" name in the marketing of seafood products and "Suarez Gran
Reserva", "Breton Legend",  "Anduleros",  "Don Otilio","Alminante"  "Nativo" and
various other trade names in marketing of premium handmade  cigars.  The seafood
trademarks are owned by ALT. The cigar tradenames are owed by Gran Reserve Corp.

H.       EMPLOYEES

     The Company as of the date of this report  employs 7 full time  persons all
of  which  work  in  executive,   administrative  or  clerical  activities.  The
purchasing,  transportation, sales and operations of the promotional grocery and
seafood  business  utilizes  approximately  20  full  time  persons  all who are
employees  of and  under  the  supervision  and  control  of ALT.  In the  cigar
distribution  area there are 100 employees  that work in the Dominican  Republic
for Fabrica De Tabaco  Valle  Dorado,  SA. The Company  also  utilizes  numerous
independent brokers.

I.       ENVIRONMENTAL MATTERS

     The Company is subject to various  federal,  state and local  environmental
laws and regulations.  The Company believes that it is currently  conducting its
operations in material compliance with all such laws and regulations.

J.       COMPETITION

     The  Company  is  small  in  both  physical  and  financial  attributes  in
comparison to many of its competitors in the grocery industry and other business
areas in which it participates,  and, although it plans an expansion to increase
its position, the Company also competes with other more substantial companies in
the sale and distribution of frozen seafood,  including squid,  although in this
latter  area of  business  the  Company  believes  it may be among  the  largest
distributors of squid from China. The Company's  knowledge and experience in and
devotion to its business,  receptiveness to general customers,  service, and its
exclusivity  arrangement  with a major Chinese trading entity should continue to
benefit  its  operations  and  continue  to  allow it to  compete  with its more
financially endowed competitors.

K.       YEAR 2000 ISSUE

     The Company does not consider that there will be any material effect on its
business  operations  of any Year 2000 issues  relating  to  computer  generated
information and  maintenance.  The Company is not reliant on time based computer
generated information which may be affected by such issues. The Company does not
maintain  inventory of any significance,  the records of which might under other
circumstances  be  adversely  affected.  Therefor  the  Company has not made any
general  plans to  address  any Year  2000  issues.  However,  the  Company  has
purchased  the necessary  accounting  software for its system that are Year 2000
compliant.

L.        RECENT DEVELOPMENTS/RELIANCE ON ONE CUSTOMERS

     The Company relies on its relationship  with ALT and Agent for the majority
of its sales of promotional  grocery  products.  On all such sales,  the Company
expects  to receive  the  promotional  rebates  and other  manufacturer  offered
incentives  as the  Company's  income from such sales.  The products are sold to
Agent at the cost to the Company for the initial  purchase of the products  from
the manufacturer without  consideration of promotional rebates, all of which are
later received by the Company  directly from the  manufacturers on resale of the
products by Agent.  ALT through  Agent  finances the purchase of the products by
the  Company  and to the extent  Agent may be  considered  a  "customer"  of the
Company,  the Company's  business may be viewed to a significant extent as being
reliant on a continued  viable  relationship  with such customer.  However,  the
ultimate sales of the products thorough Agent is made to a network of purchasers
developed  by the Company who through  advertising  by such  customers  meet the
promotional  guidelines of the  manufacturer  to qualify the Company for rebates
from the  manufacturer.  The product sales are thereby  considered  sufficiently
diversified  by the  Company  to sustain  its  business  if the  Distributorship
arrangement  with ALT is terminated for any reason.  These latter  customers are
considered  loyal to the  Company  and not the  Agent  so the  sales to them are
considered by the Company as sales of the Company by whose  direction such sales
were made. The profit on such sales from product  acquisition  cost is booked by
the Agent however resultant from the Distribution  Agreement between the Company
and ALT.  The income the Company  derives from its  distributorship  arrangement
with ALT has evolved to a point where the Company is presently  receiving income
mainly  from  receipt  of  manufacturer  promotional  rebates  on  such  product
distribution,  although the Company has not relinquished its right in the future
to  reinstate   the  royalty   arrangement   originally   provided  for  in  the
Distributorship Agreement. (for further particulars on such arrangement refer to
the  Distributorship  Agreement filed as an exhibit hereto.)  Effective June 24,
1998 the Company changed its corporate name from Krantor  Corporation to Synergy
Brands Inc and adopted a new NASDAQ  trading  symbol of SYBR.  The reasoning for
the name  change was to provide  recogination  more  clearly of the  synergistic
connection between product acquistion and it's marketing by the Company.

                                      -9-

<PAGE>
ITEM 2:  PROPERTIES

     The Company's central  headquarters  consists of approximately  1000 square
feet of office space.  Two of the Company  employees work at this facility.  The
Company may expand its  warehousing  activities to other  facilities if and when
same may be deemed  advisable  for easy access to goods at various  locations in
the United States and/or abroad or for other reasons  associated with the nature
of goods sold.  Currently  squid from China is stored in freezers at warehousing
facilities in New Jersey.  The Company utilizes regional sales offices under the
distribution  agreement located in New York, New Jersey,  Florida,  Pennsylvania
and the Dominican Republic.

     The Company has relocated its principal  offices to 10850 Perry Way,  Suite
203, Wexford,  Pennsylvania  near Pittsburgh,  Pennsylvania and has arranged for
warehousing,  where  necessary,  on a contract  basis.  Such facility change was
accomplished because of the lesser need for larger facilities in the wake of the
Company's entering into its distributorship arrangement with its Chinese trading
partner,  the  latter  company  being  responsible  for  purchasing,  financing,
shipping and handling of all goods distributed for them by the Company.  The new
principal  offices for the Company were established in  Pennsylvania,  closer to
the domicile of Krantor's president,  Henry Platek, which offices continue to be
used  principally  as a  contact  point  and  are  fully  accessible  by  modern
telecommunications.  The Company  maintains  satellite  offices in New York, New
Jersey, Florida and the Dominican Republic.

ITEM 3:  LEGAL PROCEEDINGS

     The Company is subject to legal  proceedings  and claims which arise in the
ordinary  course of  business.  In the  opinion  of  management,  the  amount of
ultimate  liability  with  respect  to these  proceedings  and claims may have a
materially affect the financial position of the Company.

     The Company is named as a defendant  in various  lawsuits  arising from the
liquidation  of  Island  Frozen  and  Dairy  ("IFD"),  a  previous  wholly-owned
subsidiary  of the  Company.  The Company has  reserved and accrued on its books
funds to cover these possible claims. There are currently $120,000 in judgements
against the Company from former IFD creditors that have sought recovery from the
Company.   The  Company  is  appealing  these  judgements   and/or   negotiating
settlements  with these IFD  creditors.In  June 1996,  a complaint  was filed in
Superior Court Law Division, Essex County, New Jersey, Docket No. ESX-L- 6491-96
by New Jersey National Bank against the Company,  Affiliated Island Grocers, the
then affiliate of the Company, and certain other defendants,  seeking payment on
secured business  financing,  to which claim the Company believes it has and has
asserted  significant  claims to monetary offsets.  The principal amount claimed
owed by the Company in such lawsuit is $350,000.00. The Company does not believe
that the extent of the  balance of above  mentioned  lawsuits  exceeds $ 75,000.
While it is not  reasonably  possible to estimate the amount of losses in excess
of amounts  accrued and reserved for such losses,  if any, that may arise out of
such litigation,  management  believes that the outcome will not have a material
effect on the operations of the Company.

     Action was brought by Krantor  Corporation,  and Island  Wholesale  Grocers
Inc., an affiliated company of Krantor  Corporation against The Proctor & Gamble
Distributing  Company, in which case The Proctor & Gamble  Distributing  Company
counterclaimed,  which  action was  brought  in United  States  District  Court,
Eastern  District of New York under docket no. CIV. 96- 1503(FB),  the nature of
the claims relating to promotional rebates which the Company claims from Proctor
& Gamble and  accounts  payable  from the Company to Proctor & Gamble  which are
claimed as due and outstanding. The Company has negotiated a settlement

                                      -10-

<PAGE>


agreement with Proctor and Gamble in connection  with this matter entered in May
1997. The settlement involves recognition of debt due to Proctor & Gamble in the
amount of $1,465,976  which the Company shall pay in cash and stock,  as reduced
by  promotional  rebates  expected to offset at least one third of such  settled
amount.  Full payment is due by April 30, 2000. Failure to abide by the terms of
such settlement may have a material adverse effect on the Company's business.

     Two former officers of IFD were awarded through arbitration  $467,000 under
disputed  employment  contracts.  The award was converted to a judgment  against
Krantor  and  Affiliated   Island  Grocers  d/b/a  Island  Frozen  &  Dairy.  An
involuntary  Bankruptcy  petition  was  attempted  and the  Company  settled all
actions  relating  to this case for  $300,000  in shares of the Common  Stock by
stipulation entered in the Eastern District of New York, Case No.  897-87458-478
dated November 6, 1997.

ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     In 1997 no matters  were  submitted  for  shareholder  approval  during the
fourth quarter.


                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
         STOCKHOLDER MATTERS

     The  Company's  Common Stock were traded on NASDAQ  Small-Cap  through June
1998 under the symbol "KRAN",  and on the Boston Stock Exchange under the symbol
"KRN" and  thereafter  on NASDAQ Small Cap under the Symbol  "SYBR",  and on the
Boston  Stock  Exchange  under  the  Symbol  "SYN",  recognizing  the  change in
corporate name of the Registrant to Synergy Brands Inc. effective June 24, 1998.
The NASDAQ Stock  Market,  which began  operation in 1971, is the world' . first
electronic  securities  market and the fastest  growing stock market in the U.S.
NASDAQ    utilizes    today's    information    technologies    -computer    and
telecommunications-  to unite  its  participants  in a  screen-based,  floorless
market.  It enables market  participants to compete with each other for investor
orders in each NASDAQ security and surveillance of thousands of securities. This
competitive marketplace,  along with the many products and services available to
issuers and their  shareholders,  attracts  today's  largest and fastest growing
companies   to  NASDAQ.   These   include   industry   leaders   in   computers,
pharmaceutical, telecommunications,  biotechnology, and financial services. More
domestic  and  foreign  companies  list on NASDAQ  than on all other U.S.  stock
markets  combined.  The high and low sales prices in the NASDAQ Small Cap Market
for the  Company's  Common  Stock,  as  reported  by the  NASDAQ for each of the
quarters of the Company's two most recent fiscal years are as follows:

                                      -11-

<PAGE>
                                  COMMON STOCK

Quarter Ended                                High              Low
-------------                              -------           -------
March 31, 1996                              38.28             34.38
June 30, 1996                               35.93             33.59
September 30, 1996                           9.38              7.81
December 31, 1996                            9.38              1.56
March 31, 1997                               4.68              1.50
June 30, 1997                                3.13               .75
September 30, 1997                           1.44               .97
December 31, 1997                            3.19              1.03
March 31, 1998                               2.50              1.59

     On April 6, 1998,  the  Company  had  approximately  5000  shareholders  of
record,  with much of the  stock  being  held in street  name.  The  Company  is
currently  listed on NASDAQ Small Cap. In May 1997 the Company reserve split its
common stock 1 for 25. The figures shown through  December 31, 1996 are adjusted
to show pro-forma post-split; all figures thereafter are also split adjusted.

     The Company has never paid any  dividends  on its Common Stock and does not
presently  intend to pay any  dividends on the Common  Stock in the  foreseeable
future.  The Company also has authorized and outstanding Class A Preferred Stock
but dividends thereon have been waived (see below).

REDEMPTION OF PREFERRED STOCK AND SETTLEMENT ON DIVIDENDS

     In December  1997,  the  Company,  by  agreement  with the holder  thereof,
redeemed all of its outstanding  Preferred Stock and reached agreement regarding
settlement on  outstanding  accrued  dividends  thereon,  issuing to such holder
400,000 shares of unlegended common stock (as and for redemption), and an option
(the "Option") to purchase  500,000  additional  shares of legended common stock
exercisable  at $1.00 per share,  together  with  payment of  $350,000  from the
Company to the holder (as settlement on any claims for accrued  dividends and in
lieu of future  dividends).  The  Option  does not vest  until the  Company  has
reached a pre-tax  profit of  $1,000,000  and if and when vested  shall be for a
five year term. The Preferred  Stock was  thereafter  re-issued to Mair Faibish,
the Company's  Executive Vice  President in recognition of and in  consideration
for his efforts in locating new product  lines for  marketing by the Company and
his assistance in locating  financing  therefor,  but dividends  associated with
such  Stock  have been  waived and there  will be no  acceptance  of  redemption
thereof unless same is done with the written consent of the Company's full Board
of  Directors,  such  alteration  in the  terms  of the  Preferred  Stock  being
agreeable  to the new holder  evidenced  by written  agreement  reached with the
Company.  Neither  the  Company  nor  Mr.  Faibish  believe  that  there  is any
significant  monetary benefit to the transfer and holding of the preferred stock
because  same does not carry any  divided  rights but same  gives Mr.  Faibish a
perceived  comfort level in being able to vote the stock to maintain a semblance
of order to the organizational structure of the Company.

ITEM 6.  SELECTED FINANCIAL DATA

     The selected  operating  statement  and balance  sheet data set forth below
have been  derived from the  financial  statements  of the  Company,  which were
audited by Belew Averitt LLP for the fiscal years ended December 31, 1997, 1996,
1995,  1994,  and  1993.  The  information  set  forth  below  should be read in
conjunction with the audited financial  statements of the registrant and related
notes  appearing  elsewhere  in this  Report.  For  information  related  to the
discontinuing  operations refer to the "Consolidated  Financial Statement" (note
12) and Supplementary Data.


Income Statement Data:

                     Year Ended December 31, (In Thousands)

                                 1997     1996        1995      1994       1993
                                 ----     ----        ----      ----       ----

Net Sales                       5,007      7,087     43,917    32,017     43,319
Cost of Sales                   4,195      7,829     38,588    28,598     39,323
Net Income (loss)                 169    (11,187)       553      (572)       141
Net Income (loss) per
Common Share                     (.03)    (34.56)      1.75     (6.50)      2.25
Balance Sheet Data:
Working Capital                    85     (2.367)     5,627     5,663      1,515
Total Assets                    4,094      3,366     18,318     9,360      6,180
Short Term Debt                   535        803      4,621     1,844      1,914
Long Term Debt                   --          377         50      --         --
Stockholders Equity             1,949       (407)     6,949     6,318      2,364

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
         OF OPERATIONS

OVERVIEW

     The Company  primarily  distributes and merchandises  squid and promotional
brand name grocery  products  through an agency agreement with a Chinese trading
company ("ALT") to the food industry.  The Company  discontinued its Kosher Food
business (IFD) on June 30, 1996. The Company's  current assets consist primarily
of accounts  receivable,  prepaid  expenses and cash. The Company's  liabilities
consist of accounts  payable,  short term and long term debt.  The Company  also
recently entered the business of the sale and distribution of premium handrolled
cigars.
                                      -12-

<PAGE>
RESULTS OF OPERATIONS

     The following  table sets forth selected  operational  data of the Company,
expressed as a percentage of revenues for the periods indicated below:


                            Years Ended December 31,

                                 1993     1994     1995     1996     1997
                                 ----     ----     ----     ----     ----

Revenues                         100.0%   100.0%   100.0%   100.0%   100.0%

Cost of Sales                    (90.8)   (89.3)   (87.9)  (106.2)   (77.8)

Operating Expenses                (7.7)   (10.6)    (8.1)   (12.6)   (17.1)


Other Income (expense)            (1.0)    (3.7)    (1.6)    (2.7)     0.6
                                  ----     ----      ----    ----     ----
Income(loss)from
Operations Before
Income Tax                         0.5     (3.6)     2.4    (21.5)     5.7

Income Tax
(Expense)Benefit                  (0.2)     1.2     (0.8)    (0.3)      --

Discontinued Operations             --       --     (0.3)  (129.9)    (2.4)
Extraordinary Item                 0.0      0.6       --       --       --
                                  ----     ----      ----    ----     ----

Net Income(Loss)                   0.3%    (1.8)%    1.3%  (151.7)%    3.3%

                                      -13-

<PAGE>
                          Year Ended December 31, 1997
                    Compared to Year Ended December 31, 1996

     Revenues from  continued  operations  decreased for the year ended December
31, 1997 to $5.4 million,  a (27%) decrease as compared to the prior period. The
decrease in revenues is related to  discontinuing  IFD's business and operations
and the  recognition  of  commission  income as  opposed  to direct  sales.  The
Company's sales increased materially in the second half of 1997. The Company was
able to re-establish direct vendor contacts, especially with its largest vendor,
Proctor & Gamble thereby  reducing  overall  product cost. The Company  believes
that in 1998 sales growth should substantially exceed 1996 and 1997 levels.

     Cost of  sales  decreased  for the year  ended  December  31,  1997 to $4.2
million or (46%)  decrease as compared to the prior year.  The Company's cost of
goods decreased as a percentage of sales. The Company  attributes this change to
increased  commission  income,  increased  squid  sales  and  a  more  favorable
marketing promotional program. The Gross Profit in 1997 was 22% as compared to a
Gross Profit loss in 1996 due to the liquidation of IFD.


     Selling  General  &  Administrative  expenses  from  continuing  operations
increased to $907,386 for the period, a 1.1% increase. The increase in operating
expenses is attributable  to the total  absorption by the Company of expenses in
connection  with  closing  down IFD.  Costs  incurred  include  legal  expenses,
financing  costs and stock  issuances in connection with satisfying IFD creditor
claims.

     Net income from  continuing  operations  increased  to  $299,682  ($.05 per
share)  compared  to a loss  of $1.6  million  ($5.5  per  share).  The  Company
attributes its profitability to:

         a)       Closing its kosher business (IFD).

         b)       signing a  Distributorship  Agreement with its Chinese trading
                  partner to re-enter the  promotional  grocery  business.  This
                  Agreement  allowed the Company to reestablish  vendor contacts
                  and obtain financing for product  purchases for re-sale to its
                  customers in the  promotional  grocery and health & beauty aid
                  (HBA) business.

         c)       increasing  commission  sales of squid  manufactured by ALT at
                  higher margins.

         d)       streamlining  its corporate  overhead by  establishing  profit
                  centers  in each  business  segment  with  separate  operating
                  budgets.

         e)       outsourcing  all primary  services  relating  sales,  freight,
                  warehousing and management information systems.

         f)       significant  utilization of the internet for sales,  marketing
                  and corporate exposure.

     One time charges from discontinued  operations  totalled $130,632 ($.08 per
share)  as  compared  to $9.6  million  ($29 per  share).  As a result  net loss
applicable  to common stock  totalled $ 50,950 ($.03 per share) as compared to a
loss of $11.4 million ($34.5 per share).  The Company does not expect its future
expenses from discontinued operations to be material to its future business.

     In 1998 the Company hopes to benefit from its entry to the premium handmade
cigars business,  as well as increasing its sales by purchasing from its primary
vendors in the promotional grocery and HBA business.

                                      -14-

<PAGE>
                          Year Ended December 31, 1996
                    Compared to Year ended December 31, 1995

     Revenues from  continued  operations  decreased for the year ended December
31, 1996 to $7.4  million an (83%)  decrease  as  compared to the prior  period.
Revenues  from  discontinued  operations  (IFD)  for the  period  totaled  $12.8
million.  Total revenues for the combined business would have been $20.2 million
a 54%  decrease  from the prior  period.  The decrease in revenues is related to
discontinuing  IFD's  business  and the lack of  sufficient  working  capital to
maintain continuing operations.  In addition a major kosher poultry manufacturer
filed and was granted an injunction  against the Company and IFD. The injunction
limited the company's  ability to do business in the third quarter and prevented
the  utilization  of its credit  facilities.  In  October,  1996 the  injunction
against the company was lifted. The injunction was related to IFD's business and
not the Company's  grocery and squid  business.  The  redirection  of capital to
continuing  operations should allow the promotional grocery and seafood business
to expand to Fiscal 1995 profit  levels  starting in Fiscal year 1997;  although
additional  capital may be required (See  "Liquidity and Capital  Resources" and
"Forward looking and Cautionary  Statement").  However, the Company will only be
recognizing  royalty revenues in connection with its distribution and not direct
product  revenue.  This would cause the  Company's  revenue  base to decrease as
compared to prior years, but should not affect profitability.

     Cost of sales for continued  operations decreased to $7.8 million or (80 %)
decrease as compared to the prior year. This decrease was primarily attributable
to the decrease in the Company's revenues due to discontinued  operations and $1
million  adjustment to a trade payable due Proctor & Gamble  resulting  from the
Company's  settlement with this primary vendor.  The Company's gross profit from
continuing  operations  decreased  from 12.1% to (6.2)% in the same  period.  In
order to support IFD's business and maintain its liquidity the Company needed to
quickly sell inventory at margins that were lower than customarily  realized. At
the closing date of IFD's  business the  Company's  cost of goods  totaled $18.1
million on $12.8 million in revenues. In order to raise cash to satisfy creditor
obligations  the Company was forced to sell below its product cost.  The Company
felt that in closing down IFD, it would have a difficult  time to fully  collect
on its accounts and would need significant legal support in this effort.

     Selling  General  &   Administrative   (S,G&A)   expenses  from  continuing
operations decreased to $897,367 for the period a 74% decrease. This decrease is
related to lower  revenues from  continued  operations.  SG&A as a percentage of
sales for continued  operation increased from 7.7% to 12.2% for the same period.
The  increase  in  operating  expenses  as a  percentage  of sales is due to the
drastic  reduction of sales.  Major  components of SG&A include freight expense,
sales  commissions and general service fees that are direct percentage of sales.
As sales decline, these components of sale decline as well.


     Loss from  continuing  operations  totaled  $1.6  million for the period as
compared to a $703,632  profit for the same period.  This decrease is related to
an (83%) drop in revenues from continuing  operations and $1 million  adjustment
to a trade payable due Proctor & Gamble resulting from the Company's  settlement
with this primary vendor. Loss from discontinued  operations totaled $9,575,148.
The Company believes that the total costs incurred from discontinuing operations
have been fully  charged to earnings  and should not  materially  affect  future
operating results.

     The Company fully  reserved its IFD inventory at December 31, 1996.  Due to
Empire's  injunction  on the IFD  inventory,  the goods  lost value due to their
perishable  nature.  At December 31, 1997 the Company realized no sales from its
inventory  and in fact the public  warehouses  liquidated  the IFD  inventory to
cover warehousing costs.

                                      -15-

<PAGE>
                          Year Ended December 31, 1995
                    Compared to Year Ended December 31, 1994

     Revenues  increased for the year ended December 31, 1995 to $43,917,040,  a
$11,900,189  (37.0%)  increase as compared to the prior year.  This increase was
primarily due to two factors:  (i) the increase in the Company's  line of credit
in November 1994 from $2.0 million to $5.0 million; and (ii) the completion of a
secondary  public  offering in November  1994  resulting  in net proceeds to the
company of approximately $3.7 million.  These two factors enabled the Company to
purchase larger  quantities of products and maintain  greater  inventory  levels
thus  leading  to  higher  sales  volume  in  1995.  All  activity   related  to
discontinued operations has been eliminated.

     Cost  of  sales   increased  for  the  year  ended  December  31,  1995  to
$38,588,738,  a $10,001,045  (or 35.0%)  increase as compared to the prior year.
This  increase  was  primarily  attributable  to the  increase in the  Company's
revenues.  The gross profit  increased  from 10.7% in 1994 to 12.1% in 1995 as a
result of the increased percentage of sales derived from the Company's wholesale
business. All activity related to IFD has been eliminated.

     Selling,  general and administrative  expenses increased for the year ended
December 31, 1995 to $3,386,874,  a $364,449 (or 12.0%)  increase as compared to
the prior year.  This increase is primarily  attributable to the increase in the
Company's revenues by 37.0% in 1995 as compared to 1994.

     The Company had net income of $552,883 in 1995 as compared  with a net loss
of $571,743 in 1994.  The gain is  attributable  to the increase in sales volume
during 1995 increasing  gross profit from 10.7% to 12.1% and decreasing  selling
general and administration costs from 9.4% of sales in 1994 to 7.7% in 1995.

                                      -16-

<PAGE>
                         Liquidity and Capital Resources


     The company had a positive working capital of $85,000 at December 31, 1997.
Excluding IFD's current liabilities,  working capital for continuing  operations
equals $746,000.  Liabilities were reduced from $3.8 million to $2 million a 46%
drop. (See Notes 4 & 5 to Consolidated Statements).  Reaching a positive working
capital position is a significant milestone for the Company. The Company finally
raised  enough  capital  and  turned  its  operations  to  profitability   which
significantly enhanced the liquidity of the Company. As a result the Company can
begin to secure  vendor  credits and  secured  financing  to grow its  operating
business.  These  changes  reflect a positive  working  capital  position of the
Company after absorbing all costs related to discontinued  operation  (IFD). The
Company  believes that it has sufficient  working capital to fund its continuing
operations but requires additional  financing to expand.  Continuing  operations
will be conducted  through Island Wholesale  Grocers (IWG), and the distribution
agreement  entered into on October 1, 1996 with ALT. (See Note 9 to Consolidated
Statements).

     The  Company's  receivables  for  the  fiscal  year  increased  by  130% to
$1,128,000.  The increase of receivables is due to several factors which include
the Company's  re-establishment,  as a primary supplier,  through IWG, of direct
sales through its  Distribution  Agreement  with ALT. The Company is financing a
portion of its business  through trade credits  arranged  through ALT and vendor
credits  established  by IWG. The Company  hopes to continue this trend with the
support of ALT. The Company currently buys directly from one of the major food &
consumer product companies in the United States.

     The Company plans on expanding its core grocery and frozen  seafood  market
through its distribution agreement. Krantor believes that by discontinuing IFD's
operation  it should  enable  it to  support  the  capital  requirements  of its
continuing  operations.  However,  the Company  believes it will need additional
financing in the form of  subordinated  debt or equity to finance its  expansion
plans. See "Forward-Looking Information and Cautionary Statements."

     The Company  had a $8 Million  credit  facility  with  Fidelity  Funding of
California  which  expired on November  14, 1997.  The Company is currently  not
borrowing under the facility.  The Company's  business is being conducted though
its  distribution  agreement.  The Company  believes that it no longer  requires
Fidelity's  facility and intends to pay the facility off through the liquidation
of IFD's assets.  The facility,  which expired in November 1996, was extended on
May 11, 1996 through November 14, 1997 by Fidelity.

     Management  is not  aware  of  negative  trends  in the  Company's  area of
business or other economic  factors which may cause a significant  change in the
Company's  viability or financial  stability,  except as specified herein and in
"Forward-Looking Information and Cautionary Statements." Management has no plans
to alter the nature of its business.

     Subject to available  financing,  the Company intends to further expand its
continuing  business  through its distribution  agreement by merchandising  well
accepted readily  marketable  promotional  brand-name  grocery products,  frozen
squid and handmade premium cigars.  However,  there can be no assurance that the
Company's proposed expansion plans will be successful.

SEASONALITY

     Seasonality  affects the demand for certain  products  sold by the Company,
such as juice  drinks in the  summer  months or hot  cereals  in fall and winter
months.  However, all these products are available to the Company throughout the
year.  Manufacturers  also tend to promote more heavily towards the close of the
fiscal quarters and during the spring and early summer months. Accordingly,  the

                                      -17-

<PAGE>

Company is able to purchase more  products,  increase sales during these periods
and reduce its  product  cost due to these  promotions.  The  Company  generally
experiences  lower sales volume in the fourth  quarter due to the reduced number
of selling days  resulting  from the  concentration  of holidays in the quarter.
Sale of frozen squid is more significant in the third and fourth quarters due to
the seasonal catch which occurs in the second quarter.

INFLATION

     The Company believes that inflation, under certain circumstances,  could be
beneficial to the Company's business.  When inflationary pressures drive product
costs up, the  Company's  customers  sometimes  purchase  greater  quantities of
product  to  expand  their   inventories  to  protect  against  further  pricing
increases.  This enables the Company to sell greater quantities of products that
are sensitive to inflationary pressures.

     However,  inflationary  pressures frequently increase interest rates. Since
the Company is  dependent  on  financing,  any  increase in interest  rates will
increase the Company's credit costs, thereby reducing its profits.

FORWARD LOOKING INFORMATION AND CAUTIONARY STATEMENTS

     Other than the factual matters set forth herein,  the matters and items set
forth in this  report are  forward-looking  statements  that  involve  risks and
uncertainties.  The  Company's  actual  results may differ  materially  from the
results discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, the following:

         1.       Cash Flow.

                  The Company has  experienced  cash shortages which continue to
                  adversely  affect its  business.  See  "Liquidity  and Capital
                  Resources". The Company requires additional working capital in
                  order to maintain and expand its business.

         2.       Dependence on Public Trends.

                  The  Company's  business is subject to the effects of changing
                  customer  preferences  and  the  economy,  both of  which  are
                  difficult  to  predict  and  over  which  the  Company  has no
                  control.  A  change  in  either  consumer   preferences  or  a
                  down-turn  in the  economy may affect the  Company's  business
                  prospects.

         3.       Potential Product Liability.

                  As  a  participant  in  the  distribution  chain  between  the
                  manufacturer  and consumer,  the Company would likely be named
                  as a defendant in any product  liability  action  brought by a
                  consumer.  To date, no claims have been  asserted  against the
                  Company for  products  liability;  there can be no  assurance,
                  however,  that  such  claims  will not  arise  in the  future.
                  Currently,  the  Company  does  not  carry  product  liability
                  insurance.  In the event that any products  liability claim is
                  not fully funded by insurance, and if the Company is unable to
                  recover  damages  from the  manufacturer  or  supplier  of the
                  product that caused such  injury,  the Company may be required
                  to pay some or all of such claim from its own funds.  Any such
                  payment could have a material adverse impact on the Company.


                                      -18-

<PAGE>
         4.       Reliance on Common Carriers.

                  The Company  does not  utilize its own trucks in its  business
                  and is dependent, for shipping of product purchases, on common
                  carriers in the trucking  industry.  Although the Company uses
                  several  hundred  common  carriers,  the trucking  industry is
                  subject  to  strikes  from  time to  time,  which  could  have
                  material  adverse  effect  on  the  Company's   operations  if
                  alternative   modes  of  shipping  are  not  then   available.
                  Additionally  the trucking  industry is susceptible to various
                  natural disasters which can close  transportation lanes in any
                  given region of the country. To the extent common carriers are
                  prevented  from or delayed in utilizing  local  transportation
                  lanes,  the Company will likely incur higher freight costs due
                  to the limited  availability  of trucks during any such period
                  that transportation lanes are restricted.

         5.       Competition.

                  The  Company  is  subject to  competition  in its  promotional
                  grocery, squid, and premium handmade cigars businesses.  While
                  these  industries  may  be  highly  fragmented,  with  no  one
                  distributor dominating the industry, the Company is subject to
                  competitive  pressures from other  distributors based on price
                  and service and product quality and origin.


         6.       Trade Relations With China.

                  The Company is dependent  on trade with the People's  Republic
                  of China  (PRC).  The  Company's  financing  arrangements  and
                  distribution  contracts  with ALT  involve a  Chinese  trading
                  company and squid, which is directly supplied through the PRC.
                  Any government  sanctions that cause an  interruption of trade
                  or  prohibit  trade with PRC through  higher  duties or quotas
                  could  have  a  material   adverse  effect  on  the  Company's
                  business.  China  currently  maintains a Most  Favored  Nation
                  status  with  the  United  States,  which  it  has  maintained
                  continuously since 1980, renewal of which is done on an annual
                  basis  each May,  Loss of such  status  could  have a material
                  adverse affect on Company business.

         7.       Litigation

                  The  Company  is  named as a  defendant  in  various  lawsuits
                  arising  from the  liquidation  of  Island  Frozen  and  Dairy
                  ("IFD"),  a previous  wholly-owned  subsidiary of the Company.
                  The Company  has  reserved  and  accrued on its books  minimal
                  funds  to  cover  these  possible  claims.  In  June  1996,  a
                  complaint  was filed in  Superior  Court Law  Division,  Essex
                  County,  New Jersey,  Docket No.  ESX-L-6491- 96 by New Jersey
                  National Bank against the Company,  Affiliated Island Grocers,
                  the  then   affiliate  of  the  Company,   and  certain  other
                  defendants,  seeking payment on secured business financing, to
                  which  claim  the  Company  believes  it has and has  asserted
                  significant  claims to monetary offsets.  The principal amount
                  claimed  owed by the Company in such  lawsuit is  $350,000.00.
                  The Company does not believe that the extent of the balance of
                  above  mentioned  lawsuits  exceeds $ 75,000.  While it is not
                  reasonably possible to estimate the amount of losses in excess
                  of amounts accrued and reserved for such losses,  if any, that
                  may arise out of such litigation, management believes that the
                  outcome will not have a material  effect on the  operations of
                  the Company.

                  Action  was  brought  by  Krantor   Corporation,   and  Island
                  Wholesale  Grocers  Inc.,  an  affiliated  company  of Krantor
                  Corporation against The Proctor & Gamble Distributing Company,
                  in  which  case The  Proctor  &  Gamble  Distributing  Company
                  counterclaimed, which action was brought in United



                                      -19-

<PAGE>
                  States  District  Court,  Eastern  District  of New York under
                  docket no. CIV. 96-1503(FB), the nature of the claims relating
                  to promotional rebates which the Company claims from Proctor &
                  Gamble  and  accounts  payable  from the  Company to Proctor &
                  Gamble which are claimed as due and  outstanding.  The Company
                  has negotiated a settlement  agreement with Proctor and Gamble
                  in  connection  with this  matter  entered  in May  1997.  The
                  settlement  involves  recognition  of debt  due to  Proctor  &
                  Gamble in the amount of $1,465,976 which the Company shall pay
                  in cash and stock, as reduced by promotional  rebates expected
                  to  offset at least one  third of such  settled  amount.  Full
                  payment  is due by April  30,  2000.  Failure  to abide by the
                  terms of such settlement may have a material adverse effect on
                  the Company's business.

                  Two former  officers of IFD were awarded  through  arbitration
                  $467,000 under disputed  employment  contracts.  The award was
                  converted to a judgment against Krantor and Affiliated  Island
                  Grocers d/b/a Island Frozen & Dairy. An involuntary Bankruptcy
                  petition  was  attempted  and the Company  settled all actions
                  relating  to this case for  $300,000  in shares of the  Common
                  Stock by  stipulation  entered in the Eastern  District of New
                  York, Case No. 897- 87458-478 dated November 6, 1997.

                  The Company is subject to other legal  proceedings  and claims
                  which arise in the  ordinary  course of its  business.  In the
                  opinion of management,  the amount of ultimate  liability with
                  respect  to these  actions  will  not  materially  affect  the
                  financial position, results of operations or cash flows of the
                  Company, but there can be no assurance as to this.

         8.       Possible Loss of NASDAQ Small Cap Listing.

                  Krantor  currently  qualifies  for trading on the Nasdaq Small
                  Cap  system.  Nasdaq  has  adopted,  and  the  Commission  has
                  approved,  certain  changes  to its  maintenance  requirements
                  which became effective as of February 28, 1998,  including the
                  requirement  that a stock  listed  in such  market  have a bid
                  price greater than or equal to $1.00.  The bid price per share
                  for the Common  Stock of Krantor  has been below  $1.00 in the
                  past and the Common Stock has remained on the Nasdaq Small Cap
                  System  because  Krantor  has  complied  with the  alternative
                  criteria which are now eliminated  under the new rules. If the
                  bid price  continues  below $1.00 per share,  the Common Stock
                  could be  delisted  from  the  Nasdaq  Small  Cap  System  and
                  thereafter  trading  would  be  reported  in  the  NASD's  OTC
                  Bulletin  Board  or in the  "pink  sheets."  In the  event  of
                  delisting  from the Nasdaq Small Cap System,  the Common Stock
                  would  become  subject  to  rules  adopted  by the  Commission
                  regulating   broker-dealer   practices  in   connection   with
                  transactions   in  "penny   stocks."  The   disclosure   rules
                  applicable to penny stocks require a broker-dealer, prior to a
                  transaction  in a penny  stock not  otherwise  exempt from the
                  rules,  to deliver a  standardized  list  disclosure  document
                  prepared by the  Commission  that provides  information  about
                  penny  stocks  and the  nature and level of risks in the penny
                  stock market. In addition, the broker-dealer must identify its
                  role,  if any,  as a  market  maker in the  particular  stock,
                  provide  information  with  respect  to  market  prices of the
                  Common  Stock  and  the  amount  of   compensation   that  the
                  broker-dealer  will  earn  in the  proposed  transaction.  The
                  broker-dealer  must also  provide the  customer  with  certain
                  other   information   and   must   make  a   special   written
                  determination  that the penny  stock is a suitable  investment
                  for the purchaser and receive the purchaser's

                                      -20-

<PAGE>
                  written  agreement  to the  transaction.  Further,  the  rules
                  require   that   following   the  proposed   transaction   the
                  broker-dealer   provide  the  customer  with  monthly  account
                  statements  containing market  information about the prices of
                  the securities.  These  disclosure  requirements  may have the
                  effect  of  reducing  the  level of  trading  activity  in the
                  secondary market for a stock that becomes subject to the penny
                  stock rules.  If the Common Stock became  subject to the penny
                  stock rules, many broker-dealers may be unwilling to engage in
                  transactions in the Company's  securities because of the added
                  disclosure requirements,  thereby making it more difficult for
                  purchasers  of the Common Stock in this offering to dispose of
                  their shares of the Common Stock.

         9.       Risks of Business Development.

                  The   Company   has   ventured   into  new  lines  of  product
                  distribution  (see  "Item I B  (Cigars)  (1997)  and C (Squid)
                  (1996)") and such product  lines are expected to  constitute a
                  material part of the Company's revenue stream. The Company has
                  not  restored  its level of product  sales to that of previous
                  years but with the  addition  of these new  product  lines the
                  Company is hopeful of reaching and hopefully  exceeding  those
                  prior  levels.  Because  of the  newness  of  these  lines  of
                  products to the Company,  the  Company's  operations  in these
                  areas  should  be  considered  subject  to all  of  the  risks
                  inherent in a new business  enterprise,  including the absence
                  of a  profitable  operating  history  and the  expense  of new
                  product development. Various problems, expenses, complications
                  and  delays  may  be  encountered   in  connection   with  the
                  development of the Company's new products. These expenses must
                  either be paid out of the proceeds of future  offerings or out
                  of  generated  revenues and Company  profits.  There can be no
                  assurance as to the availability of funds from either of these
                  sources.

         10.      Rapidly Changing Market May Impact Operations.

                  The market for the Company's products is rapidly changing with
                  evolving   industry   standards   and   frequent  new  product
                  introductions.  The  Company's  future  success will depend in
                  part  upon its  continued  ability  to  enhance  its  existing
                  products  and to  introduce  new products and features to meet
                  changing   customer   requirements   and   emerging   industry
                  standards.  The Company will have to develop and  implement an
                  appropriate marketing strategy for each of its products. There
                  can  be  no  assurance  that  the  Company  will  successfully
                  complete  the  development  of  future  products  or that  the
                  Company's  current  or future  products  will  achieve  market
                  acceptance levels conducive to the Company's fiscal needs. Any
                  delay  or  failure  of  these   products  to  achieve   market
                  acceptance would adversely affect the Company's  business.  In
                  addition,  there  can be no  assurance  that the  products  or
                  technologies developed by others will not render the Company's
                  products or technologies non-competitive or obsolete.

                  The  Company's  revenue base has been slowly  recovering  from
                  losses  of 1996  generating  from the  discontinuation  of its
                  Kosher  Food  business.  In order for the  Company to increase
                  grocery sales, it must reestablish it's relationships with the
                  major   grocery   manufactures.   The  Company  is  vigorously
                  attempting to reestablish these

                                      -21-

<PAGE>
                  ties to prior  customers as well as develop new ones.  Failure
                  to re-establish these ties would have an adverse effect on the
                  Company.  Furthermore,  the  Company  has  entered new markets
                  which include squid,  and premium  handmade cigars for sale to
                  its existing customers and newly found sources.  These product
                  lines have lower sales volume than the  Company's  traditional
                  business,  but higher  margins  and  greater  advertising  and
                  promotional  expenses.  The Company  believes that  developing
                  propriety  products is in the best  interest of the  Company's
                  expansion.   The  existence  of  and  relationship   with  the
                  Company's  Chinese  Trading  Partner  has  also  significantly
                  decreased the Company's cost of goods sold.  Failure to secure
                  market penetration in the new product lines would however have
                  an adverse effect on the Company's  profitability.  Management
                  believes actions presently being taken to revise the Company's
                  operating  and  financial   requirements  should  provide  the
                  opportunity  for the Company to  continue as a going  concern.
                  However,  Management  cannot  predict  the  outcome  of future
                  operations  and no  adjustments  have been made to offset  the
                  outcome of this uncertainty.

         11.      Dependence Upon Attracting and Holding.

                  The  Company's  future  success  depends  in large part on the
                  continued service of its key technical,  marketing,  sales and
                  management  personnel  and  on  its  ability  to  continue  to
                  attract,  motivate  and  retain  highly  qualified  employees.
                  Although the Company's key employees have stock  options,  its
                  key employees may voluntarily  terminate their employment with
                  the Company at any time.  Competition  for such  employees  is
                  intense and the process of locating  technical and  management
                  personnel  with  the  combination  of  skills  and  attributes
                  required to execute the Company's  strategy is often  lengthy.
                  Accordingly,  the loss of the services of key personnel  could
                  have a material  adverse  effect upon the Company's  operating
                  efforts  and on its  research  and  development  efforts.  The
                  Company does not have key person life  insurance  covering its
                  management personnel or other key employees.

         12.      Extensive and Increasing Regulation of Tobacco Products
                  and Litigation May Impact Cigar Industry.

                  The tobacco  industry in general has been subject to extensive
                  regulation  at the  federal,  state and local  levels.  Recent
                  trends have  increased  regulation  of the  tobacco  industry.
                  Although    regulation    initially   focused   on   cigarette
                  manufacturers,  it has begun to have a  broader  impact on the
                  industry  as a whole and may focus more  directly on cigars in
                  the future.  The recent increase in popularity of cigars could
                  lead to an  increase  in  regulation  of cigars.  A variety of
                  bills relating to tobacco  issues have been  introduced in the
                  U.S. Congress,  including bills that would have (i) prohibited
                  the  advertising  and  promotion  of all  tobacco  products or
                  restricted or eliminated the deductibility of such advertising
                  expense,  (ii)  increased  labeling  requirements  on  tobacco
                  products to include,  among others things,  addiction warnings
                  and lists of additives and toxins,  (iii)  shifted  control of
                  tobacco  products and  advertisements  from the Federal  Trade
                  Commission  (the  "FTC")  to the Food and Drug  Administration
                  (the  "FDA"),  (iv)  increased  tobacco  excise  taxes and (v)
                  required tobacco companies to pay for health care costs

                                      -22-

<PAGE>
                  incurred by the federal  government in connection with tobacco
                  related  diseases.  Future  enactment  of  such  proposals  or
                  similar  bills may have an  adverse  effect on the  results of
                  operations or financial condition of the Company.

                  In addition, a majority of states restrict or prohibit smoking
                  in  certain  public  places and  restrict  the sale of tobacco
                  products to minors.  Local  legislative and regulatory  bodies
                  also have increasingly moved to curtail smoking by prohibiting
                  smoking  in  certain  buildings  or  areas  or  by  designated
                  "smoking"  areas.  Further  restrictions  of a similar  nature
                  could  have  an  adverse  effect  on the  Company's  sales  or
                  operations,  such as banning  counter  access to or display of
                  premium handmade cigars,  or decisions by retailers because of
                  public pressure to stop selling all tobacco products. Numerous
                  proposals  also  have been  considered  at the state and local
                  level restricting smoking in certain public areas,  regulating
                  point of sale placement and  promotions and requiring  warning
                  labels.

                  Although   federal  law  has  required   health   warnings  on
                  cigarettes  since 1965 and on  smokeless  tobacco  since 1986,
                  there is no  federal  law  requiring  that  cigars  carry such
                  warnings. California, however, requires "clear and reasonable"
                  warning to consumers  who are exposed to chemicals  determined
                  by  the  State  to  cause  cancer  on  reproductive  toxicity,
                  including   tobacco  smoke  and  several  of  its  constituent
                  chemicals.  Similar  legislation  has been introduced in other
                  states, but did not pass. There can be no assurance that other
                  states will not enact similar  legislation.  Consideration  at
                  both the  federal  and  state  level  also  has been  given to
                  consequences  of tobacco smoke on others who are not currently
                  smoking  (so  called  "second-hand"  smoke).  There  can be no
                  assurance that regulations  relating to second hand smoke will
                  not be adopted or that such  regulation or related  litigation
                  would not have a  material  adverse  effect  on the  Company's
                  results of operations or financial condition.

                  Increased  cigar  consumption  and the publicity such increase
                  has received may increase the risk of  additional  regulation.
                  The Company  cannot  predict the ultimate  content,  timing or
                  effect of any additional regulation of tobacco products by any
                  federal,  state, local or regulatory body, and there can be no
                  assurance that any such  legislation  or regulation  would not
                  have a material adverse effect on the Company's business.  See
                  "Recent Developments"

                  On June 20,  1997 the  Attorneys  General of 40 states and the
                  major  United  States  cigarette   manufacturers  announced  a
                  proposed  settlement  of a lawsuit  filed by the  States.  The
                  proposed settlement, which will require that the United States
                  Congress  take  certain  action,  is  complex  and may  change
                  significantly  or be rejected.  However,  the  proposal  would
                  require significant changes in the way United States cigarette
                  and tobacco  companies do business.  Among other  things:  the
                  tobacco  companies  will pay  hundreds of billions of dollars;
                  the  FDA  could  regulate  nicotine  as a drug;  class  action
                  lawsuits and  punitive  damages  would be banned;  and tobacco
                  billboards   and   sporting   event   sponsorships   would  be
                  prohibited.  The potential  impact,  if any, of the settlement
                  and related legislation on the cigar industry is uncertain.

                                      -23-

<PAGE>
                  In  addition  to the  40-state  litigation  referred to in the
                  preceding paragraph,  the tobacco industry has experienced and
                  is   experiencing   significant    health-related   litigation
                  involving  tobacco  and  health  issues.  Plaintiffs  in  such
                  litigation  have sought and are seeking  compensatory,  and in
                  some cases punitive,  damages for various  injuries claimed to
                  result from the use of tobacco products or exposure to tobacco
                  smoke. The proposed  settlement of the 40-state litigation may
                  have a material impact to limit  litigation,  but there can be
                  no   assurance   that  there  would  not  be  an  increase  in
                  health-related  litigation against the cigarette and smokeless
                  tobacco industries or similar litigation in the future against
                  the cigar industry.  Costs of defending  prolonged  litigation
                  and any  settlement or successful  prosecution of any material
                  health-related  litigation  against  manufacturers  of cigars,
                  cigarettes  or  smokeless  tobacco or suppliers to the tobacco
                  industry could have a material adverse effect on the Company's
                  results of operations and/or financial  condition.  The recent
                  increase  in the  sales  of  cigars  and  the  publicity  such
                  increase has received  may have the effect of  increasing  the
                  probability of legal claims. Also, a recent study published in
                  the journal Science  reported that a chemical found in tobacco
                  smoke has been  found to cause  genetic  damage in lung  cells
                  that is identical to damage observed in many malignant  tumors
                  of the lung and thereby directly links lung cancer to smoking.
                  This study and other reports  could affect  pending and future
                  tobacco regulation or litigation relating to cigar smoking.

         13.      Risks Relating to Marketing of Cigars.

                  The Company primarily will distribute  premium handmade cigars
                  which are  hand-rolled and use tobacco aged over one year. The
                  Company  believes that there is an abundant  supply of tobacco
                  available  through its supplier in the Dominican  Republic for
                  the types of premium  handmade  cigars the  Company  primarily
                  will sell.  However,  there can be no assurance that increases
                  in demand would not adversely affect the Company's  ability to
                  acquire higher priced premium handmade cigars.

                  While the cigar industry has experienced increasing demand for
                  cigars  during  the  last  several  years,  there  can  be  no
                  assurance that the trend will  continue.  If the industry does
                  not  continue  as the  Company  anticipates  or if the Company
                  experiences  a reduction  in demand for whatever  reason,  the
                  Company's supplier may temporarily accumulate excess inventory
                  which could have an adverse  effect on the Company's  business
                  or results of operations.

         14.      Social, Political, And Economic Risks Associated With
                  Foreign Trade May Adversely Impact Business.

                  The Company  purchases all of its premium handmade cigars from
                  manufacturers  located in countries outside the United States.
                  In addition,  the Company  acquires squid through the People's
                  Republic  of China  ("PRC").  Social and  economic  conditions
                  inherent in foreign  operations  and  international  trade may
                  change, including changes in the laws and policies that govern
                  foreign investment and international trade. To a lesser extent
                  social, political and economic conditions may cause changes in
                  United States laws and regulations relating to foreign

                                      -24-
<PAGE>
                  investment and trade.  Social,  political or economic  changes
                  could,  among other  things,  interrupt  cigar supply or cause
                  significant   increases  in  cigar  prices.   In   particular,
                  political  or labor  unrest in the  Dominican  Republic  could
                  interrupt the  production of premium  handmade  cigars,  which
                  would   inhibit  the  Company  from  buying   inventory.   Any
                  government  sanctions that cause an  interruption  of trade or
                  prohibit  trade with the PRC through  higher  duties or quotas
                  could  have  a  material   adverse  effect  on  the  Company's
                  business.  Accordingly, there can be no assurance that changes
                  in social,  political or economic  conditions  will not have a
                  material adverse affect on the Company's business.

         15.      Seasonality.

                  Seasonality  affects the demand for certain  products  sold by
                  the Company,  such as juice drinks in the summer months or hot
                  cereals in fall and winter months. However, all these products
                  are   available   to  the   Company   throughout   the   year.
                  Manufacturers  also tend to promote more  heavily  towards the
                  close of the fiscal  quarters  and during the spring and early
                  summer months.  Accordingly,  the Company is able during these
                  periods to purchase more products, increase sales during these
                  periods and reduce its product  cost due to these  promotions.
                  The Company  generally  experiences  lower sales volume in the
                  fourth  quarter  due to the  reduced  number of  selling  days
                  resulting from the  concentration  of holidays in the quarter.
                  Sale of  frozen  squid is more  significant  in the  third and
                  fourth  quarters due to the seasonal catch which occurs in the
                  second quarter.

         16.      No Dividends Likely.

                  No  dividends  have  been  paid  on  the  Common  Stock  since
                  inception,  nor, by reason of its current financial status and
                  its   contemplated   financial   requirements,   does  Krantor
                  contemplate or anticipate paying any dividends upon its Common
                  Stock in the foreseeable future.

                                      -25-

<PAGE>
                                    PART III

     The  information  required by items  10-13 are omitted  pursuant to general
instruction  G(3) to form 10K. The Company has included this  information in its
proxy  statement  mailed and filed with the  Commission  on or before  April 30,
1998.  The  annual  meeting  was  scheduled  and held in June  1998.  Such Proxy
Statement is incorporated herein by reference.

                                     PART IV

ITEM 8.   FINANCING STATEMENTS AND SUPPLEMENTARY DATA

1.       Financial Statements

The  following  financial  statements  of the Company are contained in Item 8 of
this Report on the pages indicated:
                                                               Page
                                                               ----

Independent Auditors Reports                                   F1

Balance Sheets -
December 31, 1997, 1996                                        F2

Statements of Operations -
Years ended December 31, 1997, 1996 and 1995                   F3 - F4

Statements of Changes in Stockholders'
Equity - Years ended December 31, 1997, 1996 and 1995
                                                               F5 - F7

Statements of Cash Flows - Years
ended December 31, 1997, 1996, and 1995                        F8 - F9

Notes to Financial Statements as of
December 31, 1997, and 1996                                    F10 - F20

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

                                 Not Applicale

ITEM 14. EXHIBITS, FINANCING STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

1.       (a) Exhibits:

         See Index to Exhibits

2.       Reports on Form 8-K
         There were no reports  on Form 8-K filed  during the fourth  quarter of
         1997.

3. Financial Statement Schedules

I. Independent Auditors Report on
   Financial Statement Schedule                                F-21

II.  Valuation Accounts                                        F-23
                                      -26-

<PAGE>

                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                               KRANTOR CORPORATION



                               by /s/ Mair Faibish
                               --------------------------------
                                      Mair Faibish
                                      Executive Vice President

Dated: September 2, 1998


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

                               by /s/ Mair Faibish
                               ----------------------------------
                                      Mair Faibish
                                      Executive Vice President
                                      Principal Financial Officer
                                      and Director
Signed: September 2, 1998



                               by /s/ Mitchell Gerstein
                               ----------------------------------
                                      Mitchell Gerstein, Director

Signed: September 2, 1998

                                      -27-

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT


The Board of Directors
Krantor Corporation

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Krantor
Corporation  and  Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations,  changes in stockholders' equity and cash
flows for the years ended  December 31,  1997,  1996 and 1995.  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 our audits provide a reasonable basis for our opinion.

In our report dated April 4, 1997, we were unable to confirm promotional rebates
totaling  $1,467,738  at  December  31,  1996 or  satisfy  ourselves  about  the
recoverability  of  promotional  rebates  through  alternative  procedures.   As
described in Note 16 to the financial  statements,  the Company has restated its
December 31, 1996 financial  statements to correctly record promotional rebates.
Accordingly,  our present opinion on the December 31, 1996 financial statements,
as presented herein, is different from that expressed in our previous report.

In our opinion,  the consolidated  financial statements referred to in the first
paragraph present fairly, in all material  respects,  the financial  position of
Krantor  Corporation  and  Subsidiaries as of December 31, 1997 and 1996 and the
results of their  operations  and their cash flows for the years ended  December
31, 1997,  1996 and 1995,  in  conformity  with  generally  accepted  accounting
principles.






                                                               BELEW AVERITT LLP

Dallas,  Texas March 18, 1998, except for Note 17, as to which the date is March
31, 1998

                                      F-1

<PAGE>
<TABLE>
<CAPTION>

                      KRANTOR CORPORATION AND SUBSIDIARIES

                           Consolidated Balance Sheets

                           December 31, 1997 and 1996

                                     ASSETS

                                                                                          1997              1996
                                                                                          ----              ----
CURRENT ASSETS
<S>                                                                             <C>                <C>
   Cashand cash equivalents                                                     $       189,626    $          2,897
   Accounts receivable, net of allowance for doubtful accounts
    of $96,000 and $551,000, respectively                                             1,128,000             491,427
   Promotional rebates (Note 16)                                                        270,496             483,529
   Other current assets                                                                 136,189              51,368
                                                                                ---------------     ---------------

       Total current assets                                                           1,724,311           1,029,221

COLLATERAL SECURITY DEPOSIT (Note 10)                                                 2,252,995           2,052,995

PROPERTY AND EQUIPMENT, net (Note 3)                                                    117,402              30,611

OTHER ASSETS                                                                                  -             253,264
                                                                                ---------------     ---------------
                                                                                $     4,094,708    $      3,366,091
                                                                                ===============     ===============

                                       LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Notes payable (Note 4)                                                       $       535,810    $        803,050
   Accounts payable and accrued expenses (Note 5)                                     1,092,716           2,054,565
   Arbitration award payable                                                                  -             467,453
   Income taxes payable                                                                  10,529              71,158
                                                                                ---------------     ---------------

       Total current liabilities                                                      1,639,055           3,396,226

VENDOR DEBT DUE AFTER ONE YEAR (Note 5)                                                 395,048                   -

SUBORDINATED DEBENTURES (Note 6)                                                              -             377,000

COMMITMENTS AND CONTINGENCIES (Note 10)                                                       -                   -

PREFERRED STOCK OF SUBSIDIARY (Note 7)                                                  111,125                   -

STOCKHOLDERS' EQUITY (Note 8)
   Class A preferred stock - $.001 par value; 100,000 shares authorized                     100                 100
   Common stock - $.001 par value; 29,900,000 shares authorized                           4,140                 847
   Additional paid-in capital (Note 16)                                              14,611,141          12,426,869
   Deficit (Note 16)                                                                (12,498,401)        (12,667,451)
                                                                                ---------------     ---------------

                                                                                      2,116,980            (239,635)

   Less treasury stock, at cost, 1,400 shares                                          (167,500)           (167,500)
                                                                                ---------------     ---------------
       Total stockholders' equity (deficit)                                           1,949,480            (407,135)
                                                                                ---------------     ---------------

                                                                                $     4,094,708    $      3,366,091
                                                                                ===============     ===============


</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-2

<PAGE>

<TABLE>
<CAPTION>

                      KRANTOR CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Operations

                  Years ended December 31, 1997, 1996 and 1995


                                                                   1997                1996               1995
                                                                   ----                ----               ----

REVENUE
<S>                                                         <C>                 <C>                <C>
   Net sales (Note 11)                                      $     5,007,336     $     7,086,521     $    43,917,040
   Commission income (Note 10)                                      382,025             285,013                   -
                                                             --------------      --------------      --------------

                                                                  5,389,361           7,371,534          43,917,040

COST OF SALES (Note 16)                                           4,195,519           7,829,881          38,588,738
                                                             --------------      --------------      --------------

GROSS PROFIT (LOSS)                                               1,193,842            (458,347)          5,328,302

SELLING, GENERAL AND ADMINISTRATIVE
 EXPENSES                                                           907,386             897,367           3,386,874

DEPRECIATION AND AMORTIZATION                                        16,915              33,660             163,215
                                                             --------------      --------------      --------------

OPERATING INCOME (LOSS)                                             269,541          (1,389,374)          1,778,213

OTHER INCOME (EXPENSE)
   Interest Income                                                  134,875                   -                   -
   Net gain (loss) on marketable securities                         (37,625)             13,673                   -
   Miscellaneous income (expense)                                   (48,505)              3,027              19,171
   Interest expense (Note 16)                                             -            (216,169)           (398,777)
   Financing costs                                                  (12,479)                  -            (100,625)
   Due diligence expense                                                  -                   -            (239,566)
   Dividends on preferred stock of subsidiary (Note 7)               (6,125)                  -                   -
                                                             --------------      --------------      --------------

                                                                     30,141            (199,469)           (719,797)
                                                             --------------      --------------      --------------
INCOME (LOSS) FROM CONTINUING
 OPERATIONS BEFORE INCOME TAXES                                     299,682          (1,588,843)          1,058,416

INCOME TAX EXPENSE (Note 9)                                               -              23,149             354,784
                                                             --------------      --------------      --------------

INCOME (LOSS) FROM CONTINUING
 OPERATIONS                                                         299,682          (1,611,992)            703,632

DISCONTINUED OPERATIONS (Note 12)
   Loss from operations of IFD, net of applicable
    income tax benefit of $0                                              -          (5,357,904)           (150,749)
   Loss on disposal of IFD, net of applicable
    income tax benefit of $0                                       (130,632)         (4,217,244)                  -
                                                             --------------      --------------      --------------

NET INCOME (LOSS)                                                   169,050         (11,187,140)            552,883


</TABLE>

                                      F-3

<PAGE>
<TABLE>
<CAPTION>

                      KRANTOR CORPORATION AND SUBSIDIARIES

                  Consolidated Statements of Operations (Cont.)

                  Years ended December 31, 1997, 1996 and 1995


                                                                     1997                1996                1995
                                                                     ----                ----                ----

<S>                                                         <C>                 <C>                <C>
LESS PREFERRED DIVIDENDS                                    $       220,000     $       220,000     $       220,000
                                                             --------------      --------------      --------------
INCOME (LOSS) APPLICABLE TO COMMON
 STOCK                                                      $       (50,950)    $   (11,407,140)    $       332,883
                                                             ==============      ==============      ==============
BASIC EARNINGS (LOSS) PER COMMON
 SHARE (Note 15)
   Income (loss) from continuing operations                 $           .05     $         (5.55)    $          2.50
   Discontinued operations                                             (.08)             (29.01)               (.78)
                                                             --------------      --------------      --------------
NET INCOME (LOSS) PER COMMON SHARE                          $          (.03)    $        (34.56)    $          1.72
                                                             ==============      ==============      ==============
DILUTED EARNINGS (LOSS) PER COMMON
 SHARE                                                      $          (.03)    $        (34.56)    $          1.72
                                                             ==============      ==============      ==============
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

<TABLE>
<CAPTION>

                                [GRAPHIC OMITTED]
                      KRANTOR CORPORATION AND SUBSIDIARIES

           Consolidated Statements of Changes in Stockholders' Equity

                  Years ended December 31, 1997, 1996 and 1995


                                 Class A                                   Additional                                     Total
                              Preferred Stock         Common Stock          paid-in                       Treasury     stockholders'
                            Shares      Amount     Shares       Amount      capital        Deficit         stock         equity
                            ------      ------     ------       ------      -------        -------         -----         ------

Balance at
<S>                        <C>       <C>           <C>       <C>           <C>            <C>            <C>            <C>
 December 31, 1994         100,000   $       100   187,355   $       187   $ 8,518,151    $(2,033,194)   $  (167,500)   $ 6,317,744

Common stock issued
 in connection with
 compensation plan,
 less certain offering
 expenses                     --            --       4,641             5       298,365           --             --          298,370

Dividends on preferred
 stock                        --            --       6,000             6      (220,006)          --             --         (220,000)

Net income                    --            --        --            --            --          552,883           --          552,883
                         ---------     ---------   ---------   ---------   -----------     -----------    -----------    -----------
Balance at
 December 31, 1995         100,000           100   197,996           198     8,596,510     (1,480,311)      (167,500)     6,948,997

Common stock issued
 in connection with
 Regulation S offering,
 less related expenses        --            --     597,381           597     3,559,467           --             --        3,560,064

Dividends on preferred
 stock                        --            --       3,000             3      (220,003)          --             --         (220,000)

Dividends forgiven            --            --        --            --          55,000           --             --           55,000

</TABLE>

                                      F-5
<PAGE>

                                [GRAPHIC OMITTED]
                      KRANTOR CORPORATION AND SUBSIDIARIES

       Consolidated Statements of Changes in Stockholders' Equity (Cont.)

                  Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>


                                 Class A                                   Additional                                       Total
                             Preferred Stock            Common Stock         paid-in                    Treasury       stockholders'
                           Shares       Amount       Shares     Amount       capital       Deficit       stock              equity
                           ------       ------       ------     ------       -------       -------       -----              ------

Common stock issued
 in connection with
<S>                         <C>         <C>           <C>      <C>         <C>             <C>           <C>           <C>
 compensation plan            --        $   --        48,658   $      49   $    435,895    $     --      $     --      $    435,944

Net loss (Note 16)            --            --           --          --             --     (11,187,140)        --       (11,187,140)

Balance at
 December 31, 1996         100,000          100      847,035         847     12,426,869    (12,667,451)    (167,500)       (407,135)
                           -------      --------     --------    -------    -----------     -----------   ----------    -----------
Common stock issued
 in connection with
 Regulation S offering,
 less related expenses        --            --     1,612,200       1,612      1,330,168         --             --         1,331,780

Redemption of
 preferred stock          (100,000)        (100)     400,000         400       (130,300)        --             --          (130,000)

Issuance of preferred
 stock                     100,000          100         --          --             --           --             --               100

Dividends on preferred
 stock                        --            --           --          --        (220,000)        --             --          (220,000)

Common stock
 options exercised            --            --       275,000         275        442,225         --             --           442,500

</TABLE>

                                      F-6
<PAGE>

                                [GRAPHIC OMITTED]
                      KRANTOR CORPORATION AND SUBSIDIARIES

       Consolidated Statements of Changes in Stockholders' Equity (Cont.)

                  Years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>


                                 Class A                                   Additional                                       Total
                             Preferred Stock            Common Stock         paid-in                    Treasury       stockholders'
                           Shares       Amount       Shares     Amount       capital       Deficit       stock              equity
                           ------       ------       ------     ------       -------       -------       -----              ------
Common stock issued
 in connection with
<S>                           <C>        <C>        <C>         <C>         <C>               <C>          <C>             <C>
 compensation plan           --         $ --       1,006,280   $  1,006    $    762,179      $  --        $  --           $  763,185

Net income                   --           --            --         --          --              169,050       --              169,050
                          --------      --------   ---------   ---------   ------------    -----------   -------------   ----------
Balance at
 December 31, 1997        100,000       $ 100      4,140,515   $  4,140    $ 14,611,141   $(12,498,401)   $  (167,500)    $1,949,480
                          ========      ========   =========   =========   ============    ===========   =============   ==========
</TABLE>



          See accompanying notes to consolidated financial statements.

                                      F-7

<PAGE>

<TABLE>
<CAPTION>

                      KRANTOR CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                  Years ended December 31, 1997, 1996 and 1995


                                                                     1997                1996               1995
                                                                     ----                ----               ----
                                                                 
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                         <C>                 <C>                <C>             
   Net income (loss)                                        $       169,050     $   (11,187,140)   $        552,883
   Loss from discontinued operations                                130,632           9,575,148             150,749
   Adjustments to reconcile  net income  (loss) to net 
    cash  provided  (used) by
    operating activities:
     Depreciation and amortization                                   16,915              33,660             163,215
     Amortization of financing costs                                      -                   -             100,625
     Loss on disposal of property and equipment                      14,496                   -                   -
     Net (gain) loss from marketable securities                      37,625             (13,673)                  -
     Dividends on preferred stock of subsidiary                       6,125                   -                   -
     Operating expenses paid with common stock                      798,074             776,858                   -
     Provision for bad debts                                              -             318,346             218,380
   Changes in operating assets and liabilities:
     Purchases of marketable securities                             (73,687)            (50,277)         (1,754,735)
     Sales of marketable securities                                  36,062              77,821           1,966,766
     (Increase) decrease in:
       Accounts receivable                                         (933,160)          6,149,894          (2,935,118)
       Inventory                                                          -           4,683,366            (836,164)
       Promotional rebates                                          (47,524)              8,186            (435,244)
       Deferred taxes                                                     -             166,103              66,784
       Other current assets                                          22,789              94,448             215,674
       Other assets                                                  85,812            (215,213)            (23,825)
     Increase (decrease) in:
       Accounts payable and accrued expenses                        (34,180)         (3,273,632)          3,963,116
       Income taxes payable                                         (60,629)           (236,696)            307,854
                                                                 -----------         -----------         -----------

   Net cash flows provided by operating activities
    of continued operations                                         168,400           6,907,199           1,720,960

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of property and equipment                              (118,202)             (3,486)           (831,868)
   Payment of collateral security deposit                           (75,000)           (739,400)                  -
   Advances to related party                                              -                   -             (85,958)
   Payments from related party                                            -             228,718                   -
   Due from officers and shareholders                                     -                   -              (4,600)
                                                                 -----------         -----------         -----------
   Net cash flows used by investing activities of
    continued operations                                           (193,202)           (514,168)           (922,426)
</TABLE>

                                      F-8
<PAGE>

                      KRANTOR CORPORATION AND SUBSIDIARIES


                  Consolidated Statements of Cash Flows (Cont.)

                  Years ended December 31, 1997, 1996 and 1995


<TABLE>
<CAPTION>
                                                                     1997                1996               1995
                                                                     ----                ----               ----

CASH FLOWS FROM FINANCING ACTIVITIES
<S>                                                              <C>               <C>                <C>          
   Payments on debt                                              $       -         $(6,475,040)       $(40,657,280)
   Proceeds from debt issuance                                            -           2,728,792          42,559,039
   Issuance of subordinated debenture                                     -             480,000                   -
   Cash dividends on preferred stock                               (220,000)            (75,500)                  -
   Payment for redemption of preferred stock                       (130,000)                  -                   -
   Proceeds from issuance of common stock and
    preferred stock                                                 829,880           2,720,400              78,370
   Proceeds from issuance of preferred stock of
    subsidiary                                                      105,000                   -                   -
                                                                 -----------         -----------         -----------

   Net cash flows provided (used) by financing
    activities of continued operations                              584,880            (621,348)          1,980,129

CASH USED IN DISCONTINUED OPERATIONS                               (373,349)         (6,138,786)         (2,911,460)
                                                                 -----------         -----------         -----------
NET INCREASE (DECREASE) IN CASH                                     186,729            (367,103)           (132,797)

CASH, beginning of year                                               2,897             370,000             502,797
                                                                 -----------         -----------         -----------
CASH, end of year                                                $  189,626          $    2,897          $  370,000
                                                                 ===========         ===========         ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION

   Interest paid                                                 $   37,100          $  967,778          $  398,777
                                                                 ===========         ===========         ===========
   Income taxes paid                                             $   60,629          $   65,443          $    3,369
                                                                 ===========         ===========         ===========

SUPPLEMENTAL DISCLOSURE OF NON-CASH
 OPERATING, INVESTING AND FINANCING
 ACTIVITIES

   Inventory conveyed for collateral security deposit             $       -          $1,007,345           $       -
   Conversion of subordinated debentures                            377,000             103,000                   -
   Purchase of inventory with note payable                                -                   -             825,000
   Non-cash issuance of common stock                                532,611             306,250                   -
   Promotional rebates used to pay vendor debt                      260,557                   -                   -
                                                                 -----------         -----------         -----------
       Total non-cash operating, investing and
         financing activities                                    $1,170,168          $1,416,595          $  825,000
                                                                 ===========         ===========         ===========

</TABLE>


           See accompanying notes to consolidated financial statements.

                                      F-9

<PAGE>

                      KRANTOR CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1997 and 1996



1.       ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Organization
         ------------

         Krantor  Corporation  (Krantor) is a distributor of groceries,  general
         household  merchandise  and health and beauty  aids in the  promotional
         wholesale  industry.  In addition,  Krantor also distributes  squid and
         premium handmade cigars throughout the United States.

         In  April  1994,  Krantor  formed  a  wholly-owned  subsidiary,  Island
         Wholesale  Grocers,  Inc., which is a full-service  wholesale  delivery
         company capable of providing direct store inventory  deliveries  within
         hours of receiving an order,  principally  in the  northeastern  United
         States.

         In December 1995, Krantor formed a wholly-owned subsidiary,  Affiliated
         Island Grocers,  Inc., which does business under the name Island Frozen
         and Dairy (IFD).  IFD  distributed  specialty  food,  poultry and dairy
         products  throughout  the  northeastern  United  States.  In June 1996,
         Krantor  discontinued all operations of IFD, and presented them as such
         in the consolidated financial statements (see Note 12).

         In September 1996,  Krantor formed a wholly-owned  subsidiary,  New Era
         Foods,  Inc.  (NEF),  which is a  company  representing  manufacturers,
         retailers and  wholesalers in connection  with  distribution  of frozen
         seafood, grocery and general merchandise products (see Note 10).

         In October 1997, New Era Foods, Inc. formed a subsidiary, Premium Cigar
         Wrappers,  Inc.  (PCW),  for the  purpose of  producing  premium  cigar
         wrappers  in the  Dominican  Republic.  New Era,  Inc.  owns 66% of the
         common stock and  approximately  22% of the preferred stock of PCW (see
         Note 7).

         Principles of consolidation
         ---------------------------

         The consolidated  financial statements include the accounts of Krantor,
         its  wholly-owned   subsidiaries  and  its  majority-owned   subsidiary
         (collectively,  the Company). All significant intercompany accounts and
         transactions have been eliminated in consolidation.

         Revenue recognition
         -------------------

         The Company  recognizes  revenue at the time  merchandise is shipped to
         the customer.  The Company returns  merchandise to the supplier that is
         damaged or has the wrong specifications. The cost is recovered from the
         trucking  company  or the  supplier,  depending  upon the nature of the
         return.

         Cash equivalents
         ----------------

         The Company  considers time deposits with original  maturities of three
         months or less to be components of cash.


                                      F-10
<PAGE>

         Marketable securities
         ---------------------

         Management determines the appropriate classification of its investments
         in debt and equity  securities at the time of purchase and re-evaluates
         such  determination  at each balance  sheet date. At December 31, 1995,
         all the Company's  investments qualified as trading securities and were
         stated at market value.

         Concentrations of credit risk
         -----------------------------

         Financial   instruments  which  potentially   subject  the  Company  to
         concentrations   of  credit  risk  consist   principally   of  accounts
         receivable.   The   concentration   of  credit  risk  with  respect  to
         receivables  is mitigated  by the credit  worthiness  of the  Company's
         major  customers.  The Company  maintains an allowance for losses based
         upon  the  expected  collectibility  of  all  receivables.  Fair  value
         approximates carrying value for all financial instruments.

         During 1997, the Company  distributed its products through an unrelated
         intermediary   and  hence,   all   revenues   were  derived  from  this
         organization. As a result, the Company has an inherent business risk in
         concentrating its sales through this entity.

         Property and equipment
         ----------------------

         Property and equipment are stated at cost. Depreciation of property and
         equipment is computed using the straight-line method over the estimated
         useful lives of the assets, ranging from three to five years.

         Maintenance  and repairs of a routine  nature are charged to operations
         as incurred.  Betterments and major renewals which substantially extend
         the useful life of an existing asset are  capitalized  and  depreciated
         over the asset's  estimated  useful life. Upon retirement or sale of an
         asset, the cost of the asset and the related  accumulated  depreciation
         or amortization are removed from the accounts and any resulting gain or
         loss is credited or charged to income.

         Preferred stock of subsidiary
         -----------------------------

         Changes in preferred  stock of the  subsidiary  is accounted  for as an
         equity  transaction  and thus no gain or loss is recognized.  Upon each
         new  issuance of the  subsidiary's  preferred  stock,  the Company will
         evaluate  whether or not its  investment  has been  impaired and adjust
         accordingly.

         Advertising
         -----------

         The Company  expenses  advertising and  promotional  costs as incurred.
         Advertising expense totaled approximately  $63,000,  $5,000 and $70,000
         for the years ended December 31, 1997, 1996 and 1995, respectively.

         Income taxes
         ------------

         The Company uses the asset and liability  method of computing  deferred
         income taxes. In the event differences  between the financial reporting
         bases  and the tax  bases of an  enterprise's  assets  and  liabilities
         result in deferred tax assets,  an  evaluation  of the  probability  of
         being able to realize the future  benefits  indicated by such assets is
         required. A valuation allowance is provided for a portion or all of the
         deferred tax assets when it is more likely than not that such  portion,
         or all of such deferred tax assets, will not be realized.

                                      F-11

<PAGE>

         Earnings per share
         ------------------

         The Company  calculates  earnings  per share  pursuant to  Statement of
         Financial  Accounting  Standards  No. 128,  "Earnings  per Share" (SFAS
         128). SFAS 128 requires dual presentation of basic and diluted earnings
         per share (EPS) on the face of the statement of income for all entities
         with complex capital  structures and requires a  reconciliation  of the
         numerator and denominator of the basic EPS computation to the numerator
         and denominator of the diluted EPS computation.  Basic EPS calculations
         are based on the  weighted-average  number of common shares outstanding
         during the  period,  while  diluted EPS  calculations  are based on the
         weighted-average  common shares and dilutive  common share  equivalents
         outstanding during each period.

         Management estimates
         --------------------

         In preparing financial statements in conformity with generally accepted
         accounting  principles,  management  is required to make  estimates and
         assumptions  that affect the reported  amounts of assets,  liabilities,
         revenues and expenses during the reporting period. Actual results could
         differ from management's estimates.

         Stock-based compensation plans
         ------------------------------

         Statement of Financial  Accounting  Standards No. 123,  "Accounting for
         Stock-Based Compensation" (SFAS 123), encourages, but does not require,
         companies  to  record   compensation  cost  for  stock-based   employee
         compensation  plans at fair value.  The Company has elected to continue
         to account  for  stock-based  compensation  using the  intrinsic  value
         method  prescribed  in  Accounting  Principles  Board  Opinion  No. 25,
         "Accounting  for  Stock  Issued  to  Employees"  (APB  25) and  related
         interpretations.  Accordingly,  compensation  cost for stock options is
         measured  as the  excess,  if any,  of the  fair  market  value  of the
         Company's  stock at the date of the grant over the amount the employees
         or non-employees must pay to acquire the stock.

         Reclassifications
         -----------------

         Certain 1996 and 1995 amounts have been  reclassified to conform to the
         1997 presentation.


2.       MARKETABLE SECURITIES

         Realized gains or losses on marketable securities are determined on the
         specific identification method. Net realized gains (losses) on sales of
         securities  included in the  determination  of consolidated  net income
         (loss)  amounted to $(37,625),  $13,673 and $(3,396) in 1997,  1996 and
         1995, respectively. Gross unrealized losses were $1,721 for 1995.


3.       PROPERTY AND EQUIPMENT

         Property and  equipment  as of December 31, 1997 and 1996  consisted of
         the following:
<TABLE>
<CAPTION>

                                                                        1997                  1996
                                                              -----------------     ----------------   
<S>                                                           <C>                   <C>             
         Office equipment                                     $        193,355      $        185,355
         Machinery and equipment                                        48,824                     -
         Leasehold improvements                                         61,378                16,616
                                                              -----------------     ----------------   
                                                                       303,557               201,971
         Less accumulated depreciation and amortization               (186,155)             (171,360)
                                                              -----------------     ----------------   
                                                              $        117,402      $         30,611
                                                              =================     ================   
</TABLE>
                                      F-12
<PAGE>

4.       NOTES PAYABLE

         Notes payable at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>

                                                                                    1997                  1996
                                                                             -----------------     ----------------   
<S>                                                                          <C>                   <C>             
         Revolving line-of-credit                                            $        301,633      $        381,329
         Note payable to investment company; non-interest bearing;
          principal due May 8, 1996, previously collateralized by
          inventory of IFD                                                            159,177               346,721
         Note payable to bank due July 5, 1996; non-interest bearing;
          previously collateralized by inventory of IFD                                75,000                75,000
                                                                             -----------------     ----------------   
                                                                             $        535,810      $        803,050
                                                                             =================     ================   
</TABLE>

         The  Company  financed  its  receivables  in the prior  year  through a
         revolving  line-of-credit and security  agreement with a lender.  Under
         the terms of the agreement, the Company received cash advances of up to
         80% of its eligible accounts receivable,  as defined,  with interest at
         prime plus 2%. During 1997,  the lender ceased  corresponding  with the
         Company  and  reporting  the  activity  related to  collections  of the
         collateral and corresponding reductions of the loan.


5.        VENDOR DEBT

         In 1997,  the Company  entered into an agreement with a vendor to repay
         the December  31, 1996  accounts  payable  balance of  $1,465,976.  The
         Company  was   required  to  pay  $50,000  and  offset  50%  of  earned
         promotional  rebates  against the  payable due to the vendor.  In March
         1998, the Company  renegotiated  with the vendor and modified the terms
         of the agreement to pay off the remaining balance (see Note 17).

         The following  are the scheduled  maturities of vendor debt at December
         31, 1997:

         Year ending
         December 31,
         ------------

              1998                      $        777,776
              1999                               266,664
              2000                               128,384
                                        ----------------
                                        $      1,172,824
                                        ================


6.        SUBORDINATED DEBENTURES

         The  Company  issued  $480,000  of  3.75%  subordinated  debentures  in
         September 1996. The debentures were unsecured and convertible to common
         stock at the lower of $1 per share or 70% of the average bid price,  as
         defined.  The 30% beneficial  conversion  feature was calculated at the
         date of issuance and  amortized as interest  expense  through the first
         conversion date. The Company recognized $144,000 of interest expense in
         1996  as a  result  of  the  30%  beneficial  conversion  feature.  All
         subordinate  debentures  were  converted to common stock as of December
         31, 1997.


                                      F-13

<PAGE>

7.        MINORITY INTEREST

         PCW was  incorporated  in October 1997 with 7,750 shares of  authorized
         $.001 par value  common  stock.  At December  31,  1997,  PCW had 1,000
         shares of common stock  outstanding which were issued at par value. The
         Company owns 66% of the common stock and an unrelated  individual  owns
         the minority interest.  For financial reporting  purposes,  the assets,
         liabilities,  results of operations and cash flows for PCW are included
         in the  Company's  consolidated  financial  statements  and the outside
         investor's interest in PCW is reflected as a minority interest.

         PCW had 2,250  shares of  authorized  $.001 par value  preferred  stock
         issued and outstanding at December 31, 1997. PCW issued 1,750 shares of
         preferred  stock at inception to two unrelated  individuals  at $60 per
         share, and 500 shares to the Company for a 22% minority interest in the
         preferred  stock.  The holders of PCW  preferred  stock are entitled to
         receive  cumulative  dividends  at the rate of $14 per share before any
         dividends on the common stock are paid.  Included in preferred stock of
         subsidiary is $6,125 of preferred stock  dividends  payable at December
         31, 1997. The Company's  portion has been eliminated in  consolidation.
         In the event of dissolution of PCW, the holders of the preferred shares
         are  entitled to receive $60 per share  together  with all  accumulated
         dividends,  before  any  amounts  can  be  distributed  to  the  common
         stockholders.  The shares are convertible  only at the option of PCW at
         $120 per share.


8.       STOCKHOLDERS' EQUITY

         In May 1997, the majority of common  stockholders  voted to authorize a
         1-for-25  reverse split of the Company's  $.001 par value common stock.
         Any  stockholders  entitled  to  fractional  shares were paid with cash
         based upon the current fair market value of the stock.  All  references
         in the accompanying financial statements to the number of common shares
         have been restated to reflect the stock split.

         In November  1997,  the Company  redeemed 100% of the Class A preferred
         stock in exchange for $350,000 cash, 400,000 shares of common stock and
         options  to  purchase   500,000  shares  of  restricted   common  stock
         exercisable  at $1 per  share.  Part of the  cash  payment  was used to
         settle  accrued  dividends  of  $220,000.  The options will vest if the
         Company  achieves  $1,000,000 in pretax  income within five years.  The
         preferred stock was thereafter reissued, at par value, to an officer of
         the Company in recognition of services rendered;  however, all dividend
         privileges  and stock  redemption  rights were stripped from the stock.
         The stock retains the 13-to-1 voting privilege.

         At December  31,  1997,  the  Company  had issued  warrants to purchase
         578,000 shares of the Company's  common stock, at $1.10 per share.  The
         warrants become  exercisable  when the shares are registered and expire
         at various dates through 2002. At December 31, 1997,  578,000 shares of
         common stock were reserved for that purpose.

         During 1997, the Company issued  1,612,200  shares in connection with a
         Regulation S offering at an average price of $.82 per share,  resulting
         in  $1,331,780  proceeds  net  of  offering  expenses,   including  the
         conversion of $377,000 of  subordinated  debt, and $125,000 of non-cash
         issuances in the Consolidated Statement of Cash Flows.

         In 1994,  the  Company  registered  with the  Securities  and  Exchange
         Commission on Form S-8, 600,000 shares of the Company's common stock to
         be  distributed  under  the  Company's  1994  Services  and  Consulting
         Compensation  Plan (Plan).  An  additional  3,900,000  shares have been
         reserved since that date.  Since the inception of the Plan, the Company
         has issued  1,343,450  shares for payment of services to employees  and
         professional  service providers such as legal,  marketing,  promotional
         and investment consultants.  Common stock issued in connection with the
         compensation  plan was valued at the fair value of the common  stock at
         the date of  issuance  at an  amount  equal to the  service  provider's
         invoice  amount.  Under the Plan, the Company  granted options in 1994,
         1995 and 1997 to selected employees and professional service providers.

                                      F-14

<PAGE>


         The  following is a summary of such stock option  transactions  for the
         years ended  December 31, 1997,  1996 and 1995 in  accordance  with the
         Plan:

<TABLE>
<CAPTION>


                                                                                                        Weighted
                                                                                                         average
                                                                                         Number of      exercise
                                                                                          shares          price
                                                                                          ------          -----

<S>                                                                                        <C>       <C>           
         Outstanding at December 31, 1994 (10,660 exercisable):                            21,740    $         3.11
           Granted                                                                         43,200    $         1.53
           Terminated                                                                     (21,740)   $         3.11
           Exercised                                                                            -    $            -
                                                                                  ----------------

         Outstanding at December 31, 1995 (37,200 exercisable):                            43,200    $         1.53
           Granted                                                                              -    $            -
           Terminated                                                                     (14,000)   $         1.87
           Exercised                                                                       (2,400)   $         1.38
                                                                                  ----------------

         Outstanding at December 31, 1996 (26,800 exercisable):                            26,800    $         1.38
           Granted                                                                        275,000    $         1.61
           Terminated                                                                     (26,800)   $         1.38
           Exercised                                                                     (275,000)   $         1.61
                                                                                  ----------------
         Outstanding at December 31, 1997                                                       -    $            -
                                                                                  ================

         Option price                                                             $  .50 - $ 3.88
                                                                                  ================
         Available for grant:
           December 31, 1995                                                            1,442,062
                                                                                  ================
           December 31, 1996                                                            2,409,430
                                                                                  ================
           December 31, 1997                                                            3,156,550
                                                                                  ================

</TABLE>


         Since the exercise price of the Company's  stock options equal the fair
         market value of the Company's  common stock at the date of grant of the
         options,  no  compensation  cost has been  recognized  in the financial
         statements in accordance  with APB 25. Had  compensation  costs for the
         stock options been determined based on the fair value at the grant date
         consistent  with the method of SFAS 123, the  Company's  net income and
         earnings  per share  would have been  reduced to the pro forma  amounts
         indicated below:
<TABLE>
<CAPTION>

                                                                   1997                1996               1995
                                                            ---------------     ----------------   ----------------
         Net income (loss):
<S>                                                         <C>                 <C>                <C>             
            As reported                                     $       169,050     $   (11,187,140)   $        552,883
                                                            ===============     ================   ================
            Pro forma                                       $       147,724     $   (11,187,140)   $        491,917
                                                            ===============     ================   ================
         Net income (loss) per common share:
            As reported                                     $         (.03)     $       (34.56)    $           1.72
                                                            ===============     ================   ================
            Pro forma                                       $         (.04)     $       (34.56)    $           1.41
                                                            ===============     ================   ================
</TABLE>

                                      F-15

<PAGE>

         The  weighted-average  fair value at date of grant for options  granted
         during  1997  and 1995  (none  granted  in 1996)  was $.08 and $.55 per
         option, respectively.  The fair value of each option grant is estimated
         using  the  Black-Shoales   option-pricing  model  with  the  following
         weighted-average assumptions used:

                                               1997              1995
                                          -------------     --------------
          
         Dividend yield                          0%                  0%
         Expected volatility                     0%                  0%
         Risk-free rate of return              6.5%               7.78%
         Expected life                     1 to 4 years         10 years

         The Company has also  reserved  100,000  shares for a stock option plan
         (Option Plan) for non-employee,  independent directors,  which entitles
         each  non-employee,  independent  director an option to purchase 10,000
         shares of the Company's stock  immediately upon election or re-election
         to the Board of Directors.  Options  granted under the Option Plan will
         be at the  fair  market  value on the date of  grant,  are  immediately
         exercisable and have a term of ten years. The Company had 1,200 options
         outstanding and exercisable and 98,800  available for grant at December
         31, 1997, 1996 and 1995 at an option price of $.50 per share.


9.       INCOME TAXES

         At December 31, 1997, the Company had a net operating loss carryforward
         of  approximately  $10,660,000,  which,  if not  utilized,  will  begin
         expiring in 2011. No Federal tax provision was required for 1996 due to
         the Company's net loss.

         The components of the deferred tax asset at December 31, 1997, 1996 and
         1995 were approximately as follows:

<TABLE>
<CAPTION>


                                                                   1997                1996               1995
                                                            ---------------     ---------------    ----------------
<S>                                                         <C>                 <C>                <C>             
         Allowance for doubtful accounts                    $        32,600     $       187,281    $        106,420
         Net operating loss carryover                             3,624,500           3,197,752                   -
         Inventory capitalization                                         -                   -              11,900
         Deferred compensation                                       99,600              97,035             (23,892)
         Capital losses                                              44,500                   -              71,675
         Other                                                            -               2,744                   -
         Valuation allowance                                     (3,801,200)         (3,484,812)                  -
                                                            ---------------     ---------------    ----------------

                                                            $             -     $             -    $        166,103
                                                            ===============     ===============    ================
</TABLE>


         The provision  for income taxes for the years ended  December 31, 1997,
         1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>


                                                                   1997                1996               1995
                                                            ---------------     ---------------    ----------------
         Federal:
<S>                                                         <C>                 <C>                <C>             
           Current                                          $             -     $             -    $        235,000
           Deferred                                                       -                   -              66,784
           State and local                                                -              23,149              53,000
                                                            ---------------     ---------------    ----------------
                Total                                       $             -     $        23,149    $        354,784
                                                            ===============     ===============    ================
</TABLE>

                                      F-16
<PAGE>

         A  reconciliation  of income tax expense  computed at the U. S. Federal
         statutory  rate of 34% and the  Company's  effective  tax  rate for the
         years ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>


                                                                   1997                1996               1995
                                                            ---------------     ---------------    ----------------
         Federal income tax expense at statutory
<S>                                                                 <C>                 <C>                 <C>  
          rate, net of reserve                                      34.0%               34.0%               34.0%

         Increase (decrease) resulting from:
           Utilization of net operating loss carryforward          (34.0%)             (34.0%)                 -
           State and local income taxes, net of
             Federal benefit                                           -                  .2%                5.8%
           Graduated rate                                              -                    -                (.7)%
                                                            ---------------     ---------------    ----------------
                                                                       -                  .2%               39.1%
                                                            ===============     ===============    ================
</TABLE>

10.      COMMITMENTS AND CONTINGENCIES

         Lease commitments
         -----------------

         The  Company  leases  office  space in Wexford,  Pennsylvania  under an
         operating  lease which expires in August 2000.  The Company also leases
         office  space in  Syosset,  New York,  under an  operating  lease which
         expires in December 1998. Rent expense for the years ended December 31,
         1997, 1996 and 1995 was  approximately  $30,000,  $95,000 and $116,000,
         respectively.

         Future minimum lease commitments are $7,620,  $7,620 and $5,080 for the
         years ending December 31, 1998, 1999 and 2000, respectively.

         Distribution agreements
         -----------------------

         In 1996, the Company  entered into a ten-year  agreement with a Chinese
         trading company (ALT) to distribute frozen seafood in the United States
         under a licensing  arrangement.  The Company  acts as an agent for ALT.
         The Company markets ALT's frozen seafood products and earns commissions
         based on sales generated by the distribution  agreement.  Additionally,
         the Company sells promotional  grocery products to an agent of ALT. ALT
         provides the funding for such purchases from the manufacturers.

         In consideration for ALT providing  products and funding to the Company
         for sale and  distribution,  and as security  for doing so, the Company
         was required to provide  $2,052,995 in 1996 and an additional  $200,000
         in 1997, as collateral  security for  performance  by the Company under
         the terms of the  agreement.  The  collateral  security  deposit  bears
         interest at 5% and is received quarterly.

         In  December  1997,  NEF  entered  into a  twenty-five  year  exclusive
         worldwide  distribution agreement with a Dominican Republic corporation
         (DR)  for  the  sale  and   distribution  of  premium  handmade  cigars
         manufactured  in the Dominican  Republic.  There is an option to extend
         the term up to an additional twenty-five years. DR will sell the cigars
         to NEF at cost, however, DR will be entitled to 50% of NEF's profits on
         resale  of the  cigars.  NEF's  profits  will be  calculated  as  gross
         receipts on sales of cigars less cost of goods, returns and allowances,
         freight,  distribution,  selling,  general and administrative expenses,
         promotional  expenses and all applicable  taxes on importation and sale
         of the product.

                                      F-17

<PAGE>

         Employment agreements
         ---------------------

         During  1995,  IFD  entered  into  employment   agreements  with  three
         employees  whereby each  employee was entitled to receive a base salary
         of $108,000 with annual increases of 5% plus certain employee  benefits
         through  December 2000 and stock  options to purchase  66,666 shares of
         the  Company's  common  stock at $2.00 per share.  The  employees  were
         terminated in 1996 and filed an  arbitration  claim for the balance due
         under the  employment  contracts.  The  employees  received a favorable
         arbitration  award  in the  amount  of  $230,000  to be paid  over  the
         remaining term of the employment  contracts.  Such amounts are included
         in the arbitration  award payable at December 31, 1996. All awards were
         paid during 1997.

         Litigation
         ----------

         The Company is a named defendant in various  lawsuits  arising from the
         liquidation of IFD. The Company has evaluated the potential exposure of
         an unfavorable outcome on various lawsuits and has accrued $125,000 for
         all losses which are considered probable.

         The Company is subject to legal  proceedings  and claims which arise in
         the ordinary course of its business. In the opinion of management,  the
         amount of ultimate  liability  with  respect to these  actions will not
         materially affect the financial position, results of operations or cash
         flows of the Company.


11.       MAJOR CUSTOMERS

         The Company has one customer,  the U.S. agent of ALT,  which  accounted
         for 100% of  total  sales  for  1997.  Accounts  receivable  from  this
         customer accounted for approximately  $1,013,000 (89.8%) of total trade
         accounts  receivable at December 31, 1997. No single customer accounted
         for more than 10% of sales in 1996.


12.      DISCONTINUED OPERATIONS

         On June 30, 1996, the Company  adopted a formal plan to discontinue the
         operations  of  IFD  through  a  liquidation  that  is  expected  to be
         completed  during  1998.  Accordingly,   IFD  is  accounted  for  as  a
         discontinued  operation  in  the  accompanying  consolidated  financial
         statements.   IFD  revenues  were  approximately  $0,  $12,852,000  and
         $3,114,000  for the years  ended  1997,  1996 and  1995,  respectively.
         During 1997, the Company  incurred  additional  expenses related to the
         liquidation of IFD and related  litigation.  Subsequent to the adoption
         of the plan to  discontinue  operations of IFD, an injunction was filed
         preventing the sale of IFD's inventory. Due to the perishable nature of
         the  inventory,  the  inventory  spoiled and $280,556 of inventory  was
         written down to the lower of cost or market in 1996 in accordance  with
         the   Accounting   Research   Bulletin  No.  43  and  included  in  the
         consolidated  statement  of  operations  as a  component  of  "Loss  on
         disposal  of IFD." The assets and  liabilities  of IFD  included in the
         accompanying  consolidated  balance  sheets as of December 31, 1997 and
         1996 consisted of approximately the following:

<TABLE>
<CAPTION>
                                                                                       1997               1996
                                                                                ----------------   ----------------
         Current assets of discontinued operations -
<S>                                                                             <C>                <C>             
            Accounts receivable, net                                            $             -    $        297,000
                                                                               ================    ================
         Current liabilities of discontinued operations:
            Accounts payable and accrued expenses                               $       125,000    $        397,000
            Notes payable                                                               536,000             803,000
            Arbitration award payable                                                         -             238,000
                                                                                ----------------   ----------------
                                                                                $       661,000    $      1,438,000
                                                                               ================    ================
</TABLE>

                                      F-18

<PAGE>

13.      RELATED PARTY TRANSACTIONS

         During  1995,  the  Company  purchased  from and  sold to a  wholesaler
         controlled  by  family  members  of the  chief  financial  officer  and
         purchased  product from a manufacturer in which an outside  director is
         president.  Sales to and purchases from these related parties  amounted
         to  approximately  $37,000 and $3,910,000,  respectively in 1995. There
         were no purchases  from nor sales to these  related  parties in 1996 or
         1997.


14.      FOURTH QUARTER ADJUSTMENTS

         The  Company   made  a  fourth   quarter   adjustment   to  correct  an
         overstatement of promotional rebates of $984,209 (see Note 16).


15.      EARNINGS PER SHARE

         The  following  data shows the amounts used in  computing  earnings per
         share  and the  effect  on the  weighted-average  number  of  shares of
         dilutive common stock.
<TABLE>
<CAPTION>

                                                                   1997                1996               1995
                                                            ----------------    ----------------   ----------------
         Net income applicable to common
<S>                                                         <C>                 <C>                <C>             
          stockholders                                      $       (50,950)    $   (11,407,140)   $        332,883
                                                            ================    ================   ================
         Weighted-average number of shares
          in basic EPS                                            1,630,220             330,071             192,990

         Effect of dilutive securities (stock warrants)              17,320                   -                   -
                                                            ----------------    ----------------   ----------------
         Weighted-average number of common
          shares and dilutive potential common
          shares used in diluted EPS                              1,647,540             330,071             192,990
                                                            ================    ================   ================
</TABLE>

16.       PRIOR PERIOD ADJUSTMENTS

         The Company's  financial  statements as of December 31, 1996, have been
         restated to reflect an error in the recording of  promotional  rebates,
         interest on subordinated debentures and preferred stock dividends.  The
         effect of the restatement is as follows:

<TABLE>
<CAPTION>

           For Year Ended                                          As Previously
         December 31, 1996                                         Reported                          As Restated
         -----------------                                      ----------------                   ----------------

         Balance sheet:
<S>                                                             <C>                                <C>             
           Promotional rebates                                  $      1,467,738                   $        483,529
           Additional paid-in capital                           $     12,262,541                   $     12,426,869
           Deficit                                              $    (11,539,242)                  $    (12,667,451)

         Statement of operations:
           Cost of sales                                        $      6,845,672                   $      7,829,881
           Interest expense                                     $         72,169                   $        216,169
           Net loss applicable to common stock                  $    (10,223,931)                  $    (11,407,140)
           Net loss per common share                            $        (30.97)                   $        (34.56)

</TABLE>

                                      F-19

<PAGE>

17.       SUBSEQUENT EVENTS

         The Company renegotiated the settlement of amounts owing to a vendor on
         March 31, 1998. According to the terms of the agreement, the Company is
         required to issue  $500,000 of common  stock to the vendor  during 1998
         and repay the remaining balance in monthly payments of $22,222 from May
         1998  through  April 2000.  No interest is being  charged by the vendor
         (see Note 5).

         In March  1998,  the Company  guaranteed  a  $1,000,000  line-of-credit
         facility to a  Dominican  cigar  manufacturer,  which is owned by a PCW
         stockholder.  The purpose of the line-of-credit is to provide financing
         to the cigar manufacturer to which PCW will supply cigar wrappers.

                                      F-20
<PAGE>




                            SUPPLEMENTAL INFORMATION

                                      F-21
<PAGE>
                          INDEPENDENT AUDITOR'S REPORT



The Board of Directors
Krantor Corporation


We have audited, in accordance with generally accepted auditing  standards,  the
consolidated  financial  statements  of  Krantor  Corporation  and  Subsidiaries
included  in this Form 10-K and have issued our report  thereon  dated March 18,
1998.  Our audits  were made for the  purpose of forming an opinion on the basic
consolidated  financial  statements  taken as a whole.  Schedule II of this Form
10-K is the  responsibility  of the  Company's  management  and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements.  This schedule has been
subjected  to the  auditing  procedures  applied  in  the  audits  of the  basic
consolidated  financial  statements  and, in our opinion,  fairly  states in all
material  respects,  the  financial  data  required  to be set forth  therein in
relation to the basic consolidated financial statements taken as a whole.



                                                               BELEW AVERITT LLP



Dallas, Texas
March 18, 1998

                                      F-22

<PAGE>

                      KRANTOR CORPORATION AND SUBSIDIARIES

                               Valuation Accounts

                                   Schedule II



<TABLE>
<CAPTION>
                                                                       Additions
                                                   Balance at         charged to                              Balance at
                                                   beginning           costs and                                   end
                      Description                    of year           expenses          Deductions              of year
----------------------------------               --------------      -------------      -------------       -------------         
Year ended December 31, 1997,
<S>                                              <C>                 <C>                <C>                 <C>          
  allowance for doubtful accounts                $     551,000       $           -      $     455,174       $      95,826
                                                 ==============      =============      =============       =============         


Reserve for deferred tax assets                  $   3,484,812       $           -      $     316,388       $   3,801,200
                                                 ==============      =============      =============       =============         

Year ended December 31, 1996,
  allowance for doubtful accounts                $     313,000       $     545,000      $     307,000       $     551,000
                                                 ==============      =============      =============       =============         

Reserve for deferred tax assets                  $           -       $   3,484,812      $           -       $   3,484,812
                                                 ==============      =============      =============       =============         

Year ended December 31, 1995,
  allowance for doubtful accounts                $     123,892       $     290,380      $     101,272       $     313,000
                                                 ==============      =============      =============       =============         


</TABLE>
                                      F-23

<PAGE>
<TABLE>
<CAPTION>

                                 EXHIBIT INDEX


Exhibit No.       Description                                                        Page
-----------       -----------                                                        ----


<C>               <C>                                                                 <C>
3.1               Certificate of Incorporation and amendments thereto (1)            EX-1

3.2               By-Laws (2)                                                        EX-4

4                 Warrants and debentures  defining  rights of security  holders     --
                  (3)

10.1              Distributorship  Agreement  dated  October  1996  between Asia     EX-6
                  Legend  Trading  Ltd.  And New Era Foods  Inc.,  as  partially
                  assigned to Tenda Foods Corp.

10.2              Distributorship  Agreement dated December 1997 between Fabrica     EX-14        
                  De Tabaco  Valle  Dorado SA and Gran  Reserve  Corporation  as
                  partially assigned to New Era Foods Inc.

10.3              Krantor Corporation 1994 Services and Consulting  Compensation     --
                  Plan, as amended (4)

21                Listing of Company Subsidiaries                                    EX-22

</TABLE>

(1)      Except for amendment to certificate of incorporation  filed 7/29/96 and
         filed 6/24/98 and Certificate of Designation  regarding Preferred Stock
         field 6/24/98, copies being included herewith, the original certificate
         of incorporation  and amendments  thereto are incorporated by reference
         to the exhibits filed to the  registration  statement of the Company on
         Form S-1 (File No.  33-83226)  filed by the Company with the Commission
         on August 24, 1994.

(2)      Except for the amendment to the By-Laws approved by the Company's Board
         of  Directors  on March 7, 1997 a copy  being  included  herewith,  the
         original By-Laws are incorporated by reference to the exhibits filed to
         the  registration  statement  of the  Company  on Form  S-1  (File  No.
         33-83226) filed by the Company with the Commission on August 24, 1994.

(3)      Copies of  outstanding  warrants and  debentures  are  incorporated  by
         reference to the exhibits  filed to the Form 8-K/A of the Company filed
         with the Commission (File No. 0-19409) on 2/3/98. Description of rights
         of Preferred Stock are included in Certificate of Designation regarding
         Preferred  Stock,  as  amended,  and  included  as Exhibit  3.1 hereto.
         Description of the Company's  Common Stock is incorporated by reference
         to the description contained in the Company's Registration Statement on
         Form 8-A (File No.  0-19409)  filed  with the  Commission  pursuant  to
         Section  12(b) of the  Exchange  Act on July 16,  1991,  including  any
         amendment or report filed for the purpose of updating such description.

(4)      Incorporated by reference to the Registration  Statement of the Company
         on Form S-8 (File No. 333-21623) filed with the Commission on 2/12/97.