SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

( X )    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For fiscal year ended November 29, 1998

(  )     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         For the transition period from                 to
                                       ----------------   -------------------

Commission File No. 1-7013


                            GRISTEDE'S SLOAN'S, INC.
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)


                     Delaware                           13-1829183
            -------------------------------          ----------------
            (State or Other Jurisdiction of          (I.R.S. Employer
             Incorporation or Organization)         Identification No.)


           823 Eleventh Avenue, New York, New York        10019-3535
           ----------------------------------------       ----------
           (Address of Principal Executive Offices)       (Zip Code)


                                 (212) 956-5803
              ----------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)


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

     Title of each class             Name of each exchange on which registered
-----------------------------        -----------------------------------------
Common Stock, $0.02 par value                   American Stock Exchange

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

                                      None

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  the  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]

As of February 25, 1998,  19,636,574  shares of the  registrant's  common stock,
$0.02 par value,  were  outstanding.  The  aggregate  market value of the common
stock held by  nonaffiliates of the registrant  (i.e.,  excluding shares held by
executive  officers,  directors,  and control persons as defined in Rule 405) on
that date was $3,464,144 computed at the closing price on that date.

Documents Incorporated by Reference:  None

                                        1

<PAGE>


         This  annual  report  on  Form  10-K  contains  both   historical   and
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform  Act  of  1995.  Words  such  as  "anticipates",  "believes",
"expects", "intends", "future", and similar expressions identify forward-looking
statements.  Any such  "forward-looking"  statements in this report  reflect the
Company's current views with respect to future events and financial performance,
and are subject to a variety of factors  that could cause the actual  results or
performance to differ materially from historical results or from the anticipated
results or performance expressed or implied by such forward-looking  statements.
Because of such factors,  there can be no assurance  that the actual  results or
developments   anticipated   by  the  Company  will  be  realized  or,  even  if
substantially  realized,  that they will have the anticipated results. The risks
and uncertainties  that may affect the Company's  business include,  but are not
limited  to:  economic  conditions,   governmental  regulations,   technological
advances,  pricing  and  competition,  acceptance  by  the  marketplace  of  new
products,  retention of key personnel, the sufficiency of financial resources to
sustain and expand the Company's operations, and other factors described in this
report and in prior filings with the Securities and Exchange Commission. Readers
should not place undue reliance on such forward-looking statements,  which speak
only as of the date hereof,  and should be aware that except as may be otherwise
legally  required  of the  Company,  the Company  undertakes  no  obligation  to
publicly  revise  any such  forward-looking  statements  to  reflect  events  or
circumstances that may arise after the date hereof.

ITEM 1.           BUSINESS.

General

         The Company is a Delaware corporation whose principal executive offices
are located at 823 Eleventh Avenue,  New York, New York  10019-3535.  Unless the
context otherwise  requires,  the terms "Company" or "Registrant" as used herein
refer to  Gristede's  Sloan's,  Inc.  (which is a holding  corporation)  and its
wholly-owned subsidiaries.

         The Company owns and operates 40  supermarkets,  (the  "Supermarkets").
Thirty-five  Supermarkets are located in Manhattan, New York, three Supermarkets
are located in  Westchester  County,  New York,  one  Supermarket  is located in
Brooklyn,  New York and one Supermarket is located in Long Island,  New York. 11
of the  Supermarkets  are operated  under the "Sloan's" name and 29 are operated
under  the  "Gristede's"  name.  The  Company  leases  all  of  its  Supermarket
locations.

         During fiscal year 1998, the Company acquired one  Supermarket,  closed
two Supermarkets for business consolidation, and closed two Supermarkets because
their leases expired and were not renewed. Additionally the Company combined two
physically  adjacent  Supermarkets into one Supermarket during the remodeling of
the two stores.

         The Company also owns City Produce Operating Corp. ("City Produce"),  a
corporation which operates a warehouse used as an internal  distribution center,
on leased premises in Bronx County,  New York. The warehouse  operation supplies
the Company's  Supermarkets with groceries and fresh produce. The warehouse also
sells wholesale fresh produce to third parties.

         The Company  competes on the basis of providing  customer  convenience,
service  and a wide  assortment  of food  products,  including  those  that  are
appealing  to the  clientele in the  neighborhoods  where its  Supermarkets  are
located. The Supermarkets,  like most Manhattan  supermarkets,  are smaller than
their suburban counterparts,  ranging in size from approximately 3,200 to 23,000
square feet of selling space and averaging 9,000 square feet of selling space.

         The  Supermarkets  offer,  at  competitive   prices,   broad  lines  of
merchandise,  including  nationally and regionally  advertised  brands,  private
label and generic brands. Merchandise sold

                                        2

<PAGE>


includes food items such as fresh meats, produce, dry groceries, dairy products,
baked  goods,  poultry and fish,  fresh  fruits and  vegetables,  frozen  foods,
delicatessen  and  gourmet  foods,  as  well  as  many  non-food  items  such as
cigarettes,  soaps, paper products, and health and beauty aids. The Company also
operates  an  in-store  pharmacy  dispensing  prescription  drugs  in one of its
Supermarkets.  Check-cashing  services  are  available  to  qualified  customers
holding  check-cashing  cards and,  for a small fee,  the Company  will  deliver
groceries to a customer's  apartment  door. The  Supermarkets  accept payment by
Mastercard,  Visa,  American  Express and  Discover  credit  cards.  Most of the
Supermarkets  are open sixteen hours per day, seven days a week and on holidays,
including Christmas, New Year's and Thanksgiving. Most of the Supermarkets close
two hours earlier on Sundays.

         The  Company's  predecessor  was  incorporated  in 1956 in New York. In
1985, the Company's  domicile was changed to Delaware by merging the predecessor
corporation  into a newly formed  Delaware  corporation,  incorporated  for such
purpose. The Company became a public company in 1968 and listed its Common Stock
on the American Stock Exchange in 1972.  Until 1992, the Company  engaged in the
jewelry business, operating under the name Designcraft Industries, Inc. for most
of such time.  The  Company  changed its name to Sloan's  Supermarkets,  Inc. in
September 1993 and to Gristede's  Sloan's,  Inc. in November 1997 to reflect its
current business.


Recent Developments

         In January,  1999, the Company commenced operating an in-store pharmacy
dispensing prescription drugs in one of its Supermarkets.

         In  February  1998,  the Company  acquired  from an  affiliate  of John
Catsimatidis,  the  Chairman  of the Board and Chief  Executive  Officer  of the
Company,  the assets of a Supermarket located at 1644 York Avenue, New York, New
York.  For  information  concerning the terms of such  acquisition  see Item 13.
"Certain Relationships and Related Transactions." The acquisition did not have a
material effect on the Company's revenues or expenses.

         On November 10, 1997 a Merger  Agreement  was  consummated  pursuant to
which four corporations  directly or indirectly owned by Mr. Catsimatidis merged
into four newly formed wholly owned subsidiaries of the Company.  As a result of
the mergers  (collectively,  the "Merger"),  the Company acquired the assets and
business of 29 operating  supermarkets.  Pursuant to the Merger Agreement,  John
Catsimatidis and Red Apple Group Inc.  ("Group"),  a corporation wholly owned by
John Catsimatidis, as the sole stockholders of the four corporations acquired in
the Merger,  became  entitled to receive an aggregate of $ 40,000,000  in market
value of the Company's Common Stock. The aggregate market value of the shares of
the  Company's  Common Stock issued in the Merger was reduced by an amount equal
to  the  amount  of  certain  liabilities  of the  acquired  companies  to  John
Catsimatidis and entities  controlled by him which were assumed by the surviving
corporations  in the  Merger.  The  aggregate  amount  of such  liabilities  was
$4,000,000.


Growth Strategy

         The  Company  believes  that  the  Merger  has  allowed  it to  realize
synergies and increased  operating leverage while providing  management with the
necessary resources and focus to streamline operations,  automate facilities and
capitalize on strategic opportunities. The Company also believes that the Merger
has  enabled it to achieve the  critical  mass  necessary  to execute its future
growth strategy.

                                        3

<PAGE>


         The  Company  has  embarked  on a capital  expenditure  program for its
Supermarkets  that  includes  extensive  remodelings,   the  introduction  of  a
centralized  point-of-sale  information  system  and  the  opening  of  in-store
pharmacies  dispensing  drugs in its  Supermarkets.  The Company has obtained an
$8,000,000 five year term loan from certain banks to partly finance such capital
improvements  and is currently  negotiating  an increase in its bank  facilities
(see Item 7.  "Management's  Discussion and Analysis of Financial  Condition and
Results of Operation-Liquidity and Capital Resources").

         During  the  fiscal  year  ended  November  29,  1998,  10 stores  were
remodeled for an aggregate  capital  expenditure of  approximately  $10,000,000.
During the fiscal year ending November 28, 1999, the Company anticipates it will
spend  approximately  $10,000,000 in aggregate capital  expenditures to complete
the  remodeling  of 12  additional  stores,  open two new  stores  and open four
in-store  pharmacies.  The Company anticipates that it will continue opening new
stores, and pharmacies in future years. The modernized smaller  Supermarkets are
being re-named "Gristede's 2001", and the larger Supermarkets are being re-named
"Gristede's Mega Stores".

         The largest of the remodeled stores is located in Roosevelt  Island, in
New York City and has been  expanded  in size to 23,000  square  feet of selling
space from the previous 8,000 square feet.

         Average  sales  increases at the  remodeled  stores have  exceeded 50%.
Modernization  has resulted in a more enjoyable  shopping  atmosphere  with more
rapid check-out lines due to scanners and improved lighting facilities.

         The Company may also expand its operations  through the  acquisition of
supermarkets  and/or  acquisition of businesses which the Company believes would
complement  its  core  supermarket  business.  However,  pursuant  to  an  order
embodying a  Settlement  Agreement  between the Federal  Trade  Commission  (the
"FTC"), John Catsimatidis, the Company and certain other companies controlled by
Mr. Catsimatidis (collectively, the "companies"), for a period of ten years from
March 6, 1995,  the Company  cannot,  without  prior FTC  approval,  acquire any
interest in any existing  supermarket  in a designated  area in  Manhattan.  The
order does not restrict the Company from  acquiring an interest in a supermarket
(in such  designated  area) by leasing or  purchasing a new location that at the
time of acquisition (and for six months prior to the acquisition) is not (or was
not) being operated as a supermarket.  There are no  restrictions on the Company
acquiring supermarkets that are located outside the designated area. For further
information  concerning the Settlement  Agreement and proceeding  brought by the
FTC against the companies which prompted the Settlement  Agreement,  see Note 12
of Notes to the Financial Statements of the Company.


Marketing

         The Company  advertises  in local  newspapers  on a weekly  basis.  The
Company's advertising  emphasizes competitive prices and variety of merchandise.
Some of the Company's vendors offer cooperative  advertising  allowances,  which
the Company  receives  for  advertising  particular  products  in its  newspaper
advertisements.

                                        4

<PAGE>


Competition

         The  Company's  retail  business  is subject  to  intense  competition,
characterized by low profit margins and requiring  regular  advertising.  All of
the Supermarkets are in direct competition with Food Emporium,  D'Agostino, A&P,
Pathmark and independent  supermarket/grocery  operators which do business under
the names "Pioneer",  "Key Food" and "Associated",  many of which are larger and
have  substantially  greater  resources than the Company.  The Supermarkets also
compete with other outlets which sell products sold by  supermarkets in New York
City.  Those outlets include gourmet food stores,  health and beauty aid stores,
drug  stores,  produce  stores,  bodegas,  delicatessens  and other  retail food
establishments. In addition, several of the Company's competitors have announced
plans to open larger stores.


Sources of Supply; Inventory Policy

         During  fiscal  1998  the  Company  obtained  approximately  45% of the
merchandise sold in its stores from one principal  merchandise  supplier,  White
Rose Foods, and the balance from other vendors, none of which accounted for more
than 10% of merchandise  purchased by the Company. The Company believes that its
supplier relationships are currently satisfactory.  The Company is not dependent
on these supplier  relationships  since  merchandise  is readily  available from
numerous  sources under different brand names,  subject to conditions  affecting
food supplies generally.

         The  Company's  policy is to have its  Supermarkets  fully stocked with
merchandise at all times.  This policy requires the Company to carry significant
amounts of inventory.  As stated  above,  replenishment  merchandise  is readily
available from the Company's suppliers and, on average, approximately 76% of the
Company's inventory is sold before the Company is required to pay its suppliers.


Tradenames

         The Company owns the "Gristede's" and "Sloan's" tradenames.  Such names
have an  established  reputation  in the areas  served by the  Supermarkets  for
convenience,  competitive prices,  service and a wide variety of quality produce
and merchandise.

         Gristede's is a federally  registered  trademark.  While the Company is
not  aware  that  its use of the  tradename  infringes  upon the  rights  of any
persons, it has not obtained any federal or state trademark registration for the
tradename  "Sloan's."  The assertion by a third party of superior  rights in the
tradename  "Sloan's" or the loss of the Company's right to use either  tradename
could have a material adverse effect on the Company.


Labor Contracts

         All of the  employees  of the  Company  other  than  98  administrative
employees and executives and 56 store managers and  co-managers  are represented
by  unions.  The table  below  sets  forth the name of each union with which the
Company has a collective  bargaining  agreement and the expiration  date of such
agreement.

                                        5

<PAGE>


     Name of Union                                        Expiration Date
----------------------------------------                  ---------------
Retail, Wholesale & Chain Store                           October 5, 2002
Food Employees Union, Local 338
Amalgamated Meat Cutters and Retail Food                 October 23, 1999
Store Employees Union, Local 342-50
United Food and Commercial Workers Union                December 21, 2002
("UFCW"), Local 174
UFCW, Local 1500                                            June 23, 2002
UFCW, Local 464A                                              May 1, 2003
International Brotherhood of Teamsters                      June 30, 1999
("Teamsters"), Local 803
Teamsters, Local 202                                    December 31, 2003


Governmental Approvals

         All  of the  Supermarkets  have  obtained  all  necessary  governmental
approvals, licenses and operating permits.


Employees

         At February 14, 1999, the Company had  approximately  1,323  employees,
1,207 of which are employed at the  Supermarkets or the City Produce  warehouse,
and 116 of which are employed at the Company's executive offices.  Approximately
390 of the employees were employed on a full-time basis.


Seasonality

         The Company's  Supermarkets are predominantly located in the borough of
Manhattan in New York City and serve the more affluent carriage trade.  Owing to
the significant  exodus of such customers  during the summer months for vacation
and holiday, together with an increased propensity by resident customers for out
of home dining during such period, the Company  traditionally incurs up to a 20%
seasonal  drop in sales  during  the months of July and  August  each year.  The
seasonal  decline  in sales  does not have a  material  impact  on the  level of
inventories carried by the Company.


Environmental Compliance

         Compliance  by the Company  with  Federal,  State and local  provisions
which have been enacted or adopted regarding the discharge of materials into the
environment,  or otherwise  relating to the protection of the environment,  does
not have a material financial impact on the Company.


                                        6

<PAGE>


ITEM 2.           PROPERTIES.

         The Company leases all 40  Supermarket  locations and the warehouse and
distribution  center operated by City Produce.  Five of such leases expire prior
to 2001, 22 of such leases expire on dates from 2001 through 2010 and 13 of such
leases expire on dates from 2011 through 2018.  The  Supermarkets  range in size
from approximately 3,200 to 23,000 square feet of selling space, averaging 9,000
square feet of selling space.  All of the stores are  air-conditioned,  have all
necessary  fixtures and  equipment  and are  suitable for the retail  operations
conducted thereat.


ITEM 3.           LEGAL PROCEEDINGS.

         On August 8, 1994, a lawsuit  against the Company and Mr.  Catsimatidis
was instituted in the United States District Court for the Southern  District of
New York by RMED  International,  Inc.  ("RMED"),  a former  stockholder  of the
Company.

         The complaint  alleges,  among other things,  that RMED and a purported
class consisting of persons who purchased the Company's common stock on or after
March 19, 1993 were damaged by alleged nondisclosures in certain filings made by
the Company with the Securities and Exchange Commission between January 1993 and
June 1994 relating to an  investigation  by the FTC. The complaint  alleges that
such  nondisclosures  constituted  violations  of  Federal  and New  York  State
securities  laws,  as well as common  law fraud  and  seeks  damages  (including
punitive  damages) in an unspecified  amount, as well as costs and disbursements
of the  action.  On June 2,  1994,  the  Company  issued a press  release  which
disclosed the FTC action.

         On September  30, 1994,  the  defendants  filed a motion to dismiss for
failure to state a cause of action and for lack of subject  matter  jurisdiction
over the state claims.  The motion was denied. In June 1995, RMED filed a motion
for class certification,  and discovery was held in abeyance pending disposition
of that  motion.  The  motion was  granted in March  1996.  Fast  discovery  was
completed by the end June 1998.  Expert  discovery  was  completed by the end of
1998.

         Management  believes  that the lawsuit is without  merit and intends to
defend the action vigorously; however, the outcome cannot be determined.


ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.

         None.


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

Market Information

         The Company's  Common Stock is listed and traded on the American  Stock
Exchange.  Since  November 12, 1997 the Common Stock has been quoted under stock
symbol  "GRI." Prior  thereto it was quoted under the symbol "SLO." For the year
ended November 29, 1998 and for the

                                        7

<PAGE>


Transition  Period from March 3, 1997 to November 30, 1997,  the quarterly  high
and low price range for such common stock is shown in the following tabulation.


                Fiscal Year Ended          Transition Period from March 3,
                November 29, 1998            1997 to November 30, 1997
                ---------------------        --------------------------
Quarter         High          Low            High                 Low
-----           -----         -------        -----                -----
First           2-3/8         1-11/16        3-1/8                2-1/4
Second          4-1/2         1-7/8          2-5/8                1-7/8
Third           3-13/16       2-7/8          2-11/16                  2
Fourth          2-13/16       2-3/16         Not applicable       Not applicable


         The  approximate  number of holders of record of the  Company's  Common
Stock on  February  25,1999  was 218.  The  Company  believes  that  there are a
significant  number of shares of the Company's  Common Stock held in street name
and,  consequently,  the  Company is unable to  determine  the actual  number of
beneficial owners.


Dividends

         The Company has never paid a cash dividend on its Common Stock and does
not expect to pay a cash dividend in the near future.


                                        8

<PAGE>


ITEM 6.       SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

                                                         39 Weeks
                                    Year Ended             Ended                                  Years Ended
                                   ------------         ------------        --------------------------------------------------------
                                   November 29,         November 30,            March 2,             March 3,           February 26,
                                       1998                 1997(1)              1997                  1996                 1995
                                  -------------        -------------        -------------        -------------        -------------
<S>                               <C>                  <C>                  <C>                  <C>                  <C>          
Sales .....................       $ 157,462,869        $  77,908,693        $ 104,168,864        $ 116,866,063        $ 116,862,727

Cost of sales .............          94,282,306           48,591,721           63,932,541           72,351,240           72,893,642

Gross profit ..............          63,180,563           29,316,972           40,236,323           44,514,823           43,969,085
Direct operating ..........
   expenses ...............          53,146,632           27,462,628           33,821,475           37,566,143           36,738,453
Corporate
    overhead ..............           4,742,810            3,983,280            6,207,930            6,405,593            8,269,408
Depreciation and
   amortization ...........           3,948,000            1,585,486            2,092,403            2,257,714            2,747,641
Bad debt expense ..........               --                   --                 113,242              222,878              277,952
(Net loss)/excess
    of expenses ...........            (288,339)          (3,714,422)          (1,998,727)          (1,937,505)          (4,064,369)
    over sales(2)


At End of Period
----------------
Total assets ..............          60,706,509           52,705,555           23,119,000           20,152,454           18,281,000
Long-term debt ............          21,649,942           12,662,910                 --                   --                   --
Total liabilities .........          46,293,432           38,035,533           20,014,000           17,620,539           16,822,000

<FN>
--------
(1)    Includes  the  operations  of the Food Group only for the 36 week  period
from  March 3, 1997 to  November  9,  1997 and the  operations  of the  combined
Company from November 10, 1997 to November 30, 1997.

(2)    The periods prior to the fiscal year ended November 29, 1998 include only
the sales and expenses directly  attributable to the Food Group for those stores
transferred to the public  company and do not include all items  necessary for a
statement of operations.
</FN>
</TABLE>

                                        9

<PAGE>


ITEM 7.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                       RESULTS OF OPERATIONS.

Company Background

          The  transition  period from March 3, 1997 to  November  30, 1997 (the
"Transition  Period")  consisted of 39 weeks. The fiscal year ended November 29,
1998 consisted of 52 weeks.


Results of Operations (1998 Compared to Transition Period)

         During the 36 week period from March 3, 1997 until November 9, 1997 the
Company  consisted of 15 stores and filed Quarterly Reports on Form 10-Q for the
quarters ended June 1, 1997 and August 31, 1997.

         On November 10, 1997, as a result of the Merger,  the Company  acquired
certain assets net of liabilities  of 29 selected  supermarkets  and a wholesale
distribution  business (the "Food Group") controlled by John  Catsimatidis,  the
principal  stockholder of the Company.  The transaction was accounted for as the
acquisition  of the Company by the Food Group  pursuant to Emerging  Issues Task
Force 90-13 as a result of the Food Group obtaining control of the Company after
the transaction.

         As a result of the Merger being accounted for as a reverse acquisition,
the  Transition  Period  referred to in the following  summary of the Results of
Operation for the 39 week period encompasses the operation of the Food Group for
36 weeks, and the operations of the new combined  companies for the 3 week post-
Merger period  November 10, 1997 - November 30, 1997.  Therefore,  the 15 stores
owned by the Company prior to the Merger  contributed to sales, gross margin and
overhead for only 3 weeks.

The  following  table sets forth,  as a percentage  of sales,  components of the
Results of Operations:


                                           52 weeks ended       39 weeks ended
                                         November 29, 1998     November 30, 1997
                                         -----------------     -----------------
Sales ................................        100.0 %               100.0 %
Cost of sales ........................         59.9 %                62.4 %
                                              -------               -------
Gross profit .........................         40.1 %                37.6 %
Store operating, general and .........         34.0 %                35.3 %
administrative expense
Depreciation and amortization ........          2.5 %                 2.0 %
Non-store operating expense ..........          3.0 %                 5.1 %
                                              -------               -------
Operating profit/ (loss) .............          0.6 %                (4.8 %)
                                              =======               =======

         Sales for the 52  weeks  ended  November 29, 1998 were $157,462,869  as
compared to sales for the 39 weeks ended  November  30, 1997,  on an  annualized
basis,  of $103,878,260.   The sales increase was mainly  attributable to the 15
additional  stores included in the entire 1998 period,  one acquired store which
opened in February  1998 and the results of the  Company's  remodeling  program,
which is continuing. Sales for the same 29 stores were

                                       10

<PAGE>


$100,797,076  for  the 52  weeks  ended  November  29,  1998  as  compared  with
annualized  sales of $95,173,192  for the  39 weeks ended  November 30, 1997, an
increase of 5.6%.

         Gross  profit  as a  percentage  of sales  was  40.12 % for the 52 week
period  ended  November  29,  1998 as compared to 37.63 % for the 39 week period
ended November 30, 1997. The 1998 period  includes the results of the additional
15 Sloan's stores which traditionally achieved higher gross margins.

         Store operating, general and administrative expenses as a percentage of
sales were 33.97 % for the 52 weeks ended  November  29,  1998 as compared  with
35.25 % for the 39 weeks  ended  November  30,  1997.  The  decrease in the 1998
period was mainly due to better cost  controls  resulting  from the combining of
the operations in the Merger.

         Nonstore  operating  expenses as a percentage  of sales were 3.01 % for
the 52 week period  ended  November  29, 1998 as compared to 5.11 % of sales for
the 39 week period ended November 30, 1997.  Administrative  payroll and fringes
were 2.06 % of sales for the 1998  period as  compared  with 3.15 % of sales for
the 1997 period.  The  decrease was the result of a reduction in  administrative
personnel.  General office expense as a percentage of sales  decreased to 0.70 %
for the 1998  period as  compared  to 1.59 % of sales  for the 1997  period as a
result of the  continuing  efficiencies  from the  combining of the  operations.
Professional fees were 0.15 % of sales for the 1998 period as compared to 0.36 %
of sales for the 1997  period.  The  decrease  was due to the  reduced  need for
outside  legal counsel in connection  with  litigation,  real estate and general
corporate  matters.  Corporate  expenses  were  0.10 % of sales  for the 52 week
period  ended  November  29,  1998.   Corporate   expenses  are  those  expenses
attributable  only to a public  company and as such were only  applicable to the
last 3 weeks of the 1997 period.


Results of Operation (Transition Period Compared to 1997)

The  following  table sets forth,  as a percentage  of sales,  components of the
Results of Operation:


                                              39 weeks ended      52 weeks ended
                                             November 30, 1997     March 2, 1997
                                             -----------------    --------------
Sales .....................................        100.0 %            100.0 %
Cost of sales .............................         62.4 %             61.4 %
                                                   -------            -------
Gross profit ..............................         37.6 %             38.6 %
Store operating, general and ..............         35.3 %             32.5 %
administrative expense                                         
Depreciation and amortization .............          2.0 %              2.0 %
Non-store operating expense ...............          5.1 %              6.1 %
                                                   -------            -------
Operating loss ............................         (4.8 %)            (2.0 %)
                                                   =======            =======
                                                            
         Sales for the 39 weeks ended November 30, 1997, on an annualized basis,
were  $103,878,260 as compared to  $104,168,864  for the 52 weeks ended March 2,
1997. The net sales decrease was the result of several factors. Sales for the 39
week period did not  include the busy  Christmas  and New Year's  holiday  sales
periods.  The  favorable  summer  weather in the New York City area  during 1997
resulting in prolonged vacations, as well as

                                       11

<PAGE>


continuing  deflationary  pressures  in  food  prices  also  contributed  to the
decrease in sales.  The decreases  were  partially  offset by increases in sales
attributable to the fact that 15 stores not included as part of the prior year's
numbers were included for 3 weeks in the November 30, 1997 period.  The sales of
the 15 stores  amounted to  $3,870,221 of the  annualized  39 week's  sales.  In
addition,  the  remodeling  of 4 stores  during the 39 week  period  resulted in
substantial  sales increases.  Sales for the same 29 stores were $71,379,894 for
the 39 weeks ended  November 30, 1997 as compared  with  $74,119,743  for the 39
weeks ended December 1, 1996, a decrease of 3.70%. The sales decline in the 1997
period was due to the same favorable  weather  conditions during such period and
continuing deflationary pressures in food prices previously noted.

         Gross profit as a percentage of sales was 37.63% for the 39 week period
ended November 30, 1997 as compared to 38.63% for the 52 week period ended March
2, 1997. The decreases in gross profit margin was mainly due to the  curtailment
of our long-term  forward buying  program in the November  period as compared to
the March period.  In addition,  construction  activity  taking place during the
store remodelings and grand opening promotions for the remodeled stores affected
overall gross profit margins during the November period.

         Store operating, general and administrative expenses as a percentage of
sales were 35.25% for the 39 week period ended  November 30, 1997 as compared to
32.47% of sales for the 52 week period ended March 2, 1997.  Operating  expenses
as a percentage  of sales  increased in the November  period due to increases in
occupancy cost,  labor costs  associated with the store remodels and advertising
costs.

         Non-store  operating  expenses,   including  bad  debt  expense,  as  a
percentage of sales were 5.11% for the 39 week period ended November 30, 1997 as
compared  to  6.07%  of  sales  for the 52 week  period  ended  March  2,  1997.
Administrative  payroll and  fringes  were 3.15% of sales for the 39 week period
ended  November 30, 1997 as compared  with 4.06% of sales for the 52 week period
ended  March  2,  1997.   The   decrease  was  the  result  of  a  reduction  in
administrative personnel. General office expense, including bad debt expense, as
a percentage  of sales was 1.59% for the 39 week period ended  November 30, 1997
as  compared  with  1.46%  for the 52 week  period  ended  March  2,  1997.  The
percentage  increase is  attributable  to  additional  travel and related  costs
incurred to monitor the newly  remodeled  stores during the 39 week period which
were  magnified as a  percentage  of sales by the fact that the sales for the 39
week period did not  include the busy  Christmas  and New Year's  holiday  sales
periods.  Professional  fees were  0.36% of sales for the 39 week  period  ended
November  30, 1997 as compared  with 0.55% of sales for the 52 week period ended
March 2, 1997.  The  decrease  was due to the reduced  need for the  services of
outside  legal counsel in connection  with  litigation,  real estate and general
corporate  matters.  The  subcategory  "corporate  expenses" are those  expenses
attributable  only to a public  company and are thus solely  applicable to the 3
week period ended November 30, 1997.


Liquidity and Capital Resources

         On November 10, 1997, the Company completed its financial  arrangements
with a  group  of  banks  for a  credit  facility  in the  aggregate  amount  of
$25,000,000.  Under the credit agreement the Company obtained a term loan in the
amount of  $12,000,000 to refinance  prior bank debt, an  improvement  term loan
line of credit in the amount of $8,000,000 to finance  capital  improvements  to
its  Supermarkets  and a revolving line of credit in the amount of $5,000,000 to
provide working capital.  The $12,000,000 term loan matures on October 31, 2002.
The improvement term loan line of credit and the revolving line of credit mature
on October 31, 2002 and  November  29,  1999,  respectively,  at which times all
amounts outstanding thereunder are payable.  

         Presently,  the bank  facilities  are fully utilized and the Company is
negotiating  an increase in the credit  facilities  with its banks.  There is no
assurance  that the Company will be able to negotiate  such an increase on terms
satisfactory  to the  Company.  If the  Company is unable to obtain its  desired
financing from its bank,  the Company will seek  increased  financing from third
party  leasing  companies  and/or  additional  financing  from  the  Company's
principal shareholder and other sources.

         The Company  has not  incurred  any  material  commitments  for capital
expenditures,  although it anticipates spending approximately $10,000,000 on its
store remodeling and expansion program in fiscal 1999. Such amount is subject to
adjustment based on the availability of funds.

                                       12

<PAGE>


         Borrowings under the facility bear interest at a spread over either the
prime rate of the bank  acting as agent for the group of banks or a LIBOR  rate,
with the spread  dependent on the ratio of the  Company's  funded debt to EBITDA
ratio, as defined in the credit agreement.  The average interest rate on amounts
outstanding  under the facility  during the 52 weeks ended November 29, 1998 was
8.0 % per annum.

         The credit facility contains  covenants,  representations and events of
default typical of credit facility  agreements,  including  financial  covenants
which require the Company to meet,  among other things,  a minimum  tangible net
worth, debt service coverage ratios and fixed charge coverage ratios,  and which
limit  transactions  with  affiliates.  The  facility  is secured by  equipment,
inventories  and  accounts  receivable.  During  fiscal 1998 the Company and the
banks amended the credit facility to, among other things,  modify certain of the
financial  covenants and extend the term of the revolving  line of credit by one
month until November 29, 1999.

         The Company has  available  approximately  $4.0  million in third party
leasing lines of credit to lease finance  equipment for its store remodeling and
expansion program.


Year 2000 Issue

         The Company has assesed its information  technology  ("IT") systems for
the Year 2000  readiness and has given the highest  priority to those IT systems
it  considers  mission  critical.  The  systems the  Company  considers  mission
critical are its store automation  systems (including point of sale systems) and
its computer systems at its main office which support these store systems.

         Management  expects all in-store IT systems as well as the host support
system  located in the  Company's  main office will be certified by the original
vendor as Year 2000  compliant by May 31, 1999.  These  systems were either Year
2000 compliant as installed or are being  upgraded by the original  vendors to a
Year  2000  compliant  status  under  the  existing  maintenance   programs.  No
additional expense has or will be incurred by the Company to bring these systems
in to Year 2000  compliance  since any  necessary  changes  are  provided by the
vendors under software maintenance programs.

         The Company has assessed its other IT systems, including accounting and
payroll  systems,  deployed  at its main office and its City  Produce  warehouse
facility for Year 2000  compliance  and has  identified  the steps  necessary to
ensure systems will be Year 2000 Compliant.

         The Company has developed and tested a methodology  that will allow its
existing  software programs to be Year 2000 compliant by making minor changes to
some of the existing programs.  The existing data files need not be altered. The
Company will perform application level review to identify processes that involve
the input of output of a date.  That program  will require a minor  modification
(utilizing  the already  tested  code),  to make it Year 2000  compliant.  These
systems will then be tested to confirm that they  function as expected.  Some of
the  Company's  hardware  is not now Year 2000  compliant  and the  Company  has
budgeted for the  replacement or  modification  of such hardware as necessary in
the first half of 1999.

         The Company  expects to spend  $70,000 for  hardware  and will spend an
additional  $30,000 for software  modifications  and related  expenses to ensure
that these systems are compliant.  The Company  expects that the necessary funds
for these  expenditures  will come from cash flow generated from its operations.
All testing on these  systems in expected  to be  completed  by June 30, 1999 at
which time it is expected that these systems will be Year 2000 compliant.


                                       13

<PAGE>


         The  Company  does not  currently  intend  to hire an  outside  firm to
independently verify that its systems are Year 2000 compliant.

         The Company has assessed  the  majority of its non-IT  systems for Year
2000 readiness and has identified a small number of systems,  including  certain
equipment  at store  level,  which may not be Year 2000  ready.  The  Company is
working with the vendor of these  systems of identify the best  approach.  While
these systems have an internal clock and date, the date is not necessary for the
systems to be productive.  Such systems could therefore  continue to function as
need and  management  does not  anticipate  that  these  systems  will  pose any
significant Year 2000 problem or expense.

         The  Company has begun to review the Year 2000  readiness  plans of its
major vendors in an effort to ensure that operations  remain  unaffected by Year
2000 related  failures.  The company will place preset orders with certain major
vendors  to help  ensure  product  deliveries  in the event  that the  vendor is
affected  by  failures  at some  level of its  operations  but is still  able to
deliver  merchandise.  In the event a major vendor is unable to provide products
the  Company  will  increase  its  purchases  from other  vendors  from which it
currently buys.

         The Company  purchases  merchandise  sold in its stores  from  multiple
vendors  and is not  reliant on any one  vendor  for the  normal  conduct of its
operations.  The Company is not dependant on these supplier  relationships since
merchandise is readily  available from numerous  sources under  different  brand
names, subject to conditions affecting food supplies generally.

         The  Company  believes  that  its  efforts  will  result  in Year  2000
compliance. However, the impact on business operations of failure by the Company
to achieve  compliance of failure by external  entities which the Company cannot
control,  such as  vendors,  to achieve  compliance,  could be  material  to the
Company's consolidated results of operations.


ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                  RISK.

                  Not applicable.



                                       14

<PAGE>


ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                                                                        Page No.
                                                                        --------
Report of independent certified public accountants                           F-1

Consolidated balance sheets of Gristede's Sloan's, Inc.
   and its subsidiaries as of November 29, 1998
   and November 30, 1997                                                     F-2

Consolidated Statements of Operations of Gristede's Sloans, Inc.
   and its subsidiaries for the fifty-two weeks ended
   November 29, 1998 and three weeks ended November 30, 1997                 F-4

Consolidated Statements of Sales and Expenses of Gristede's Sloan's, Inc.
   and its subsidiaries for the 36 weeks ended November 9, 1997,
   the 53 weeks ended March 2, 1997                                          F-5

Consolidated Statement of Stockholders' Equity of Gristede's Sloan's,
   Inc. and its subsidiaries for the fifty-two weeks ended 
   November 29, 1998 and three weeks ended November 30, 1997                 F-6

Consolidated Statement of Cash Flows of Gristede's Sloan's, Inc.
   and its subsidiaries for the fifty-two weeks ended 
   November 29, 1998 and three weeks ended November 30, 1997                 F-7

Notes to Financial Statements                                                F-8


                                       15


<PAGE>


Report of Independent Certified Public Accountants



Board of Directors of 
  Gristede's Sloan's, Inc.
New York, New York

We have  audited the  accompanying  consolidated  balance  sheets of  Gristede's
Sloan's,  Inc. and  subsidiaries  as of November 29, 1998 and November 30, 1997,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the fifty two weeks and three weeks then ended  respectively  and
the  related  statements  of sales and  expenses  for the thirty six weeks ended
November 9, 1997 and the fifty two weeks ended March 2, 1997 (see Note 1).

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

The accompanying  statements of sales and expenses were prepared for the purpose
of  complying  with the rules and  regulations  of the  Securities  and Exchange
Commission,  and are not intended to be a complete  presentation  of  Gristede's
Sloan's, Inc.'s results of operations for the period noted above.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  (i) the  financial  position of  Gristede's
Sloan's,  Inc. and  subsidiaries  as of November 29, 1998 and November 30, 1997,
and the results of their operations and their cash flows for the fifty two weeks
and three weeks then ended,  and (ii) the sales and  expenses for the thirty six
weeks and  fifty  two  weeks  ended  November  9,  1997 and  March 2,  1997,  in
conformity with generally accepted accounting principles.


/s/ BDO Seidman, LLP
--------------------
BDO Seidman, LLP

New York, NY

February 27, 1999




                                       F-1


<PAGE>

                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                           Consolidated Balance Sheets

<TABLE>
<CAPTION>

                                                                             November 29,      November 30,
                                                                                 1998              1997
                                                                              ----------       ----------
<S>                                                                          <C>              <C>        
Assets
Current:
   Cash ..................................................................   $    53,794      $    88,970
   Accounts receivable - net of allowance for doubtful                                     
   accounts of $ 0 and $300,000 ..........................................     5,091,174        5,110,026
   Inventories ...........................................................    18,425,802       16,221,465
   Prepaid expenses and other current assets .............................     1,320,931          914,544
   Notes receivable - current portion ....................................     1,032,203          584,912
                                                                              ----------       ----------
        Total current assets .............................................    25,923,904       22,919,917
                                                                              ----------       ----------
Property and equipment:                                                                    
   Furniture, fixtures and equipment .....................................    14,610,788       13,393,803
   Capitalized equipment leases ..........................................     8,267,999        5,574,369
   Leasehold interests and improvements ..................................    34,388,652       30,296,510
                                                                              ----------       ----------
                                                                              57,267,439       49,264,682
   Less:  Accumulated depreciation and amortization ......................    25,716,915       23,567,986
                                                                              ----------       ----------
        Net property and equipment .......................................    31,550,524       25,696,696
                                                                              ----------       ----------
Due from affiliate .......................................................          --            351,778
                                                                              ----------       ----------
Deposits and other assets ................................................       719,429          717,429
                                                                              ----------       ----------
Deferred costs ...........................................................     1,968,859        1,515,004
                                                                              ----------       ----------
Notes receivable - noncurrent portion ....................................       543,793        1,504,731
                                                                              ----------       ----------
                                                                             $60,706,509      $52,705,555
                                                                              ==========       ==========

See accompanying notes to consolidated financial statements.

</TABLE>


                                       F-2


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                           Consolidated Balance Sheets

<TABLE>
<CAPTION>

                                                                             November 29,            November 30,
                                                                                 1998                    1997
<S>                                                                       <C>                   <C>         
   Liabilities and Stockholders' Equity
   Current:
      Accounts payable, trade .........................................   $ 11,951,436          $ 15,671,962
      Accrued payroll, vacation and withholdings ......................      1,543,748             1,276,535
      Accrued expenses and other current liabilities ..................        896,716               947,395
      Note payable ....................................................        319,138                  --
      Capitalized lease obligation - current portion ..................        695,665               389,809
      Current portion of long-term debt ...............................      3,314,283             1,714,284
                                                                            ----------            ----------
           Total current liabilities ..................................     18,720,986            19,999,985
   Long-term debt - noncurrent portion ................................     18,663,935            11,285,716
   Due to affiliate ...................................................      4,031,394             4,000,000
   Deferred advertising ...............................................        248,654               378,654
   Capitalized lease obligation - noncurrent portion ..................      2,986,007             1,377,194
   Deferred rent ......................................................      1,673,850               993,984
                                                                            ----------            ----------
           Total liabilities ..........................................     46,324,826            38,035,533
                                                                            ----------            ----------
   Commitments and contingencies                                                             
   Stockholders' equity:                                                                     
      Common stock, $0.02 par value - shares authorized                                      
      25,000,000; outstanding 19,636,574 ..............................        392,732               392,732
      Additional paid-in capital ......................................     14,136,674            14,136,674
      Retained earnings (deficit) .....................................       (147,723)              140,616
                                                                            ----------            ----------
           Total stockholders' equity .................................     14,381,683            14,670,022
                                                                            ----------            ----------
                                                                          $ 60,706,509          $ 52,705,555
                                                                            ==========            ==========

See accompanying notes to consolidated financial statements.

</TABLE>


                                       F-3


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                      Consolidated Statements of Operations

<TABLE>
<CAPTION>


                                                                                   52 weeks 
                                                                                     ended                3 weeks ended
                                                                                  November 29,             November 30,
                                                                                     1998                      1997
                                                                                -------------             -------------
<S>                                                                             <C>                       <C>          
Sales ....................................................................      $ 157,462,869             $   9,225,123
Cost of sales ............................................................         94,282,306                 5,731,065
                                                                                -------------             -------------
        Gross profit .....................................................         63,180,563                 3,494,058
                                                                                -------------             -------------
Store operating, general and administrative expenses .....................         53,490,803                 2,754,563
                                                                                -------------             -------------
Depreciation and amortization                                                      3,948,000                    219,813

Nonstore operating expenses:

        Adminstrative payroll and fringes ................................          3,249,306                   166,539
        General office expense ...........................................          1,103,005                    86,588
        Professional fees ................................................            229,646                     7,975
        Corporate expense ................................................            160,853                     5,378
                                                                                -------------             -------------
Total non-store operating expenses .......................................          4,742,810                   266,480
                                                                                -------------             -------------
            Operating profit                                                          998,950                   253,202
Other income (expenses):

   Interest expense ......................................................         (1,832,036)                  (82,586)
   Interest income .......................................................            177,430                      --
   Other income ..........................................................            384,541                      --
                                                                                -------------             -------------
        Total other expenses .............................................         (1,270,065)                  (82,586)
                                                                                -------------             -------------
Loss/Income before provision                                                                           
for income taxes .........................................................           (271,115)                  170,616
Provision for income taxes ...............................................             17,224                    30,000
                                                                                -------------             -------------
Net (loss) income ........................................................      $    (288,339)            $     140,616
                                                                                =============             =============
(Loss) Income per share of common stock basic and diluted ................      $        (.01)            $         .01
Weighted average common shares outstanding ...............................         19,636,574                19,636,574
==========================================================================      =============             =============


See accompanying notes to consolidated financial statements.

</TABLE>


                                       F-4


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                  Consolidated Statements of Sales and Expenses



                                             36 weeks ended       52 weeks ended
                                            November 9, 1997      March 2, 1997
==========================================   =============        =============
   Sales .................................   $  68,683,570        $ 104,168,864
   Cost of sales .........................      42,860,656           63,932,541
==========================================   =============        =============
        Gross profit .....................      25,822,914           40,236,323
   Direct operating expenses .............      24,708,065           33,821,475
                                             -------------        -------------
                                                 1,114,849            6,414,848
   Corporate overhead ....................       3,716,800            6,207,930
                                             -------------        -------------
                                                (2,601,951)             206,918
   Depreciation and amortization .........       1,365,673            2,092,403
   Bad debt expense ......................            --                113,242
                                             -------------        -------------
   Excess of expenses over sales .........   $  (3,967,624)       $  (1,998,727)
==========================================   =============        =============

See accompanying notes to consolidated financial statements.


                                       F-5


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                 Consolidated Statements of Stockholders' Equity


Fifty two weeks ended November 29, 1998 and three weeks ended November 30, 1997

<TABLE>
<CAPTION>

                                                            Common stock
                                                     -----------------------------      Additional       Retained           Total 
                                                       Number of                          paid-in        earnings      Stockholders'
                                                        shares           Amount           capital        (Deficit)         equity
=================================================    ============     ============     ============    ============    ============
<S>                  <C> <C>                         <C>                 <C>              <C>             <C>             <C>       
   Balance, November 10, 1997 ...................            --       $       --       $       --      $       --      $       --
   To reflect acquisition of Sloan's
   Supermarket, Inc. -
   Recapitalization (Note 1) ....................      19,636,574          392,732       14,136,674                      14,529,406
   Net Income ...................................         140,616          140,616
                                                     ------------     ------------     ------------    ------------    ------------
   Balance, November 30, 1997 ...................      19,636,574          392,732       14,136,674         140,616      14,670,022

Net Loss ........................................                                                          (288,339)       (288,339)
                                                     ------------     ------------     ------------    ------------    ------------
Balance November 29, 1998 .......................      19,636,574     $    392,732     $ 14,136,674    $   (147,723)   $ 14,381,683
=================================================    ============     ============     ============    ============    ============


See accompanying notes to consolidated financial statements.

</TABLE>

                                       F-6


<PAGE>


                             Gristede's Sloans, Inc.
                                and Subsidiaries


                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>


                                                                          52 weeks ended          3 weeks ended
                                                                         November 29, 1998      November 30, 1999
======================================================================== =================      =================
<S>                                                                        <C>                    <C>         
Cash flows from operating activities:
   Net income/(loss) ...................................................   $   (288,339)          $    140,616
   Adjustments to reconcile net income to net cash used in
   operating activities:
        Depreciation and amortization ..................................      3,948,000                219,813
        Changes in operating assets and liabilities, net of
        effect from acquisition of supermarkets:
             Accounts receivable .......................................         18,852               (421,106)
             Inventories ...............................................     (2,204,337)              (209,130)
             Prepaid expenses and other current assets .................       (406,387)               442,666
             Notes receivable ..........................................        513,647                 23,433
             Receivable from officer ...................................        351,778                 (1,113)
             Other assets ..............................................       (455,855)              (399,092)
             Accounts payable, trade ...................................     (3,720,527)            (6,529,099)
             Accrued payroll, vacation and withholdings ................        267,213                397,894
             Accrued expenses and other current liabilities ............        (50,679)               270,334
             Deferred rent .............................................        678,866                 34,503
             Other credits .............................................       (130,000)               378,654
              Closed stores expense ....................................        165,958                   --

                Net cash used in operating activities ..................     (1,311,810)            (5,651,627)
                                                                           ------------           ------------
Cash flows from investing activities:
   Capital expenditures - net ..........................................     (9,966,786)              (362,987)
                                                                           ------------           ------------
                Net cash used in investing activities ..................     (9,966,786)              (362,987)
                                                                           ------------           ------------
Cash flows from financing activities:
   Repayments of bank loans ............................................     (2,290,388)            (7,100,000)
   Repayments Capitalized lease obligations ............................       (581,043)                (7,665)
   Proceeds from bank loans ............................................     11,619,138             13,000,000
   Proceeds from Capitalized lease obligations .........................      2,495,713                   --
                                                                           ------------           ------------
               Net cash provided by financing activities ...............     11,243,420              5,892,335
                                                                           ------------           ------------
               Net decrease in cash ....................................        (35,176)              (122,279)
Cash, beginning of period ..............................................         88,970                211,249
                                                                           ------------           ------------
Cash, end of period ....................................................   $     53,794           $     88,970
========================================================================   ============           ============
Supplemental disclosures of cash flow information:
   Cash paid for interest ..............................................   $  1,757,036           $     21,792
   Cash paid for taxes .................................................         85,056                  1,500
========================================================================   ============           ============


See accompanying notes to consolidated financial statements.

</TABLE>

                                       F-7


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements



1.   Business and Basis of    On November 4, 1997,  Sloan's  Supermarkets,  Inc.
     Presentation             ("Sloan's")   changed   its  name  to   Gristede's
                              Sloan's,   Inc.  ("GRI"  or  the  "Company").   On
                              November 10, 1997,  GRI acquired  certain  assets,
                              net of liabilities of 29 selected supermarkets and
                              a  wholesale   distribution  business  ("The  Food
                              Group") controlled by Mr. John Catsimatidis, a 37%
                              shareholder of GRI. The  transaction was accounted
                              for as the  acquisition  of  Sloan's  by The  Food
                              Group pursuant to Emerging Issues Task Force 90-13
                              as a result of The Food Group obtaining control of
                              Sloan's  after the  transaction.  The  assets  and
                              liabilities of The Food Group (the "Acquiror") are
                              recorded at their historical cost.  Sloan's assets
                              and liabilities  were recorded at their fair value
                              to the  extent  acquired.  Consideration  for  the
                              transaction   was   based  on  an   aggregate   of
                              $36,000,000  in  market  value  of  the  Company's
                              common stock and the  assumption  of $4,000,000 of
                              liabilities.  16,504,298  shares of  common  stock
                              were issued on the date of the  acquisition  based
                              on a market price of $2.18 per share.

                              The  accompanying  statement of operations for the
                              52 weeks ended November 29, 1998 and for the three
                              weeks  ended  November  30,  1997  represents  the
                              consolidated operations of The Food Group and GRI.
                              Retained  earnings at November 30, 1997  represent
                              the cumulative net operating  results for both The
                              Food  Group and GRI from  November  10,  1997 (the
                              date the acquisition was  consummated) to November
                              30, 1997.


                                       F-8


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements


                              The Food Group's financial statements, rather than
                              complete financial  statements,  are presented for
                              periods  prior to  November  9, 1997  because  the
                              business  acquired  consisted  of only certain net
                              assets of the stores and there are certain  assets
                              of  The  Food  Group   that  were  not   acquired.
                              Accordingly,  the statements  present only the the
                              sales and expenses  directly  attributable  to The
                              Food Group. The financial  statements consist of a
                              historical  consistent comparison of the operating
                              results  only of those stores  transferred  to the
                              public company. The entities owning The Food Group
                              (the  "Group"),  in  addition  to owning the above
                              stores, also have other operations included within
                              its consolidated  group.  Corporate overhead costs
                              for the entire Group are  allocated to the Group's
                              respective  operations,  including The Food Group.
                              Corporate  overhead  included in the  accompanying
                              statements   of   sales   and   expenses   include
                              identified  overhead  costs for  payroll and other
                              directly attributable overhead costs pertaining to
                              the retail  stores  owned by the Group  which also
                              includes  costs  incurred for selected  stores not
                              being sold. No tax benefit has been recognized due
                              to the  fact  that  the  losses  remain  with  the
                              corporate parent of The Food Group.

2.   Summary of Significant
     Accounting Policies      PRINCIPLES OF CONSOLIDATION

                              The consolidated  financial statements include the
                              accounts  of  Gristede's  Sloan's,  Inc.  and  its
                              wholly-owned     subsidiaries.     All    material
                              intercompany  accounts and transactions  have been
                              eliminated in consolidation.

                              FISCAL YEAR

                              On  January  13,  1998,  the  Company's  Board  of
                              Directors  elected to change the Company's  fiscal
                              year-end  from the Sunday  closest to the last day
                              of February to the Sunday  closest to the last day
                              of November.

                              INVENTORIES

                              Store  inventories  are valued  principally at the
                              lower of cost or market with cost determined under
                              the retail method.


                                       F-9


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements


                              PROPERTY AND EQUIPMENT

                              Depreciation of furniture,  fixtures and equipment
                              is computed by the  straight-line  method over the
                              estimated  useful lives of the assets,  with lives
                              ranging   from  seven  to  ten  years.   Leasehold
                              improvements  are  amortized  over the  shorter of
                              their estimated  useful lives or the lease term by
                              the straight-line method.

                              As of  November  30,  1997  the  Company  recorded
                              approximately  $4.3 million to leasehold rights on
                              the  consummation of the acquisition  discussed in
                              Note  1  due  to  favorable   leasing  terms.  The
                              leasehold  rights are amortized  over the ten year
                              life  of  the  individual   store  leases  by  the
                              straight-line method.

                              LEASES

                              The Company  charges the cost of  operating  lease
                              payments and  beneficial  leaseholds to operations
                              on a  straight-line  basis  over the  lives of the
                              leases.

                              DEFERRED ADVERTISING

                              Advertising    rebates   and   space    allocation
                              allowances  are deferred and  recognized in income
                              over the period of the agreement,  generally up to
                              three years.

                              ADVERTISING EXPENSE

                              The Company expenses  advertisement costs when the
                              advertisement is first shown.

                              DEFERRED COSTS

                              Deferred costs consist of a noncompete  agreement,
                              acquisition and financing costs; and are amortized
                              on a straight-line basis over five to ten years.


                                      F-10


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements


                              INCOME TAX

                              Deferred tax assets and liabilities are recognized
                              for the future tax  consequences  attributable  to
                              differences   between  the   financial   statement
                              carrying    amounts   of   existing   assets   and
                              liabilities   and  their   respective  tax  basis.
                              Deferred tax assets and  liabilities  are measured
                              using  enacted  tax  rates  expected  to  apply to
                              taxable   income  in  the  years  in  which  those
                              temporary differences are expected to be recovered
                              or settled.  The effect on deferred tax assets and
                              liabilities of a change in tax rates is recognized
                              in  income  in  the  period  that   includes   the
                              enactment date.

                              The Company will not  recognize  gain or loss as a
                              result of the completion of the  transactions  set
                              forth in the  merger  agreement  between  The Food
                              Group and the Company.  The Company  believes that
                              it  underwent  an  "Ownership  Change"  within the
                              meaning of  Section  382 of the  Internal  Revenue
                              Code of 1986, as amended,  as a future consequence
                              of the  transaction.  As a result,  the  Company's
                              ability   to  offset   its  net   operating   loss
                              carryforwards  against  income  earned  after  the
                              transaction  will be limited.  (As of November 29,
                              1998,   the   Company  had  net   operating   loss
                              carryforwards of approximately $3,000,000).  Thus,
                              the  transaction  could result in taxation of some
                              future   Company    income   that,    absent   the
                              transaction,   might  have  been   offset  by  net
                              operating loss carryforwards.

                              USE OF ESTIMATES

                              The   preparation   of  financial   statements  in
                              conformity  with  generally  accepted   accounting
                              principles  requires  management to make estimates
                              and  assumptions   that  affect  certain  reported
                              amounts of assets, liabilities, income and expense
                              and  disclosures of  contingencies.  Future events
                              could alter such estimates.


                                      F-11


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements


                              STOCK-BASED COMPENSATION PLANS

                              Statement   of  Financial   Accounting   Standards
                              ("SFAS")  No.  123,  "Accounting  for  Stock-Based
                              Compensation"  allows  either  adoption  of a fair
                              value  method  of   accounting   for   stock-based
                              compensation  plans or  continuation of accounting
                              under Accounting  Principles Board ("APB") Opinion
                              No.   25,   "Accounting   for   Stock   Issued  to
                              Employees,"  and  related   interpretations   with
                              supplemental disclosures.

                              The   Company   has  chosen  to  account  for  all
                              stock-based  compensation  arrangements  under APB
                              Opinion No. 25 with related disclosures under SFAS
                              No. 123. Pro forma net earnings  (loss) per common
                              share amounts as if the fair value method had been
                              adopted are presented in Note 11.

                              FAIR VALUE OF FINANCIAL INSTRUMENTS

                              SFAS  No.  107,   "Disclosure  About  Instruments"
                              requires  companies  to disclose the fair value of
                              financial instruments. The carrying values of cash
                              and  cash  equivalents,  accounts  receivable  and
                              accounts  payable  reported  in  the  accompanying
                              consolidated balance sheets approximate fair value
                              due to the short-term maturities of these assets.

                              The fair value of long-term  debt,  consisting  of
                              the term loans and  revolving  loan  payable as of
                              November   29,  1998  and   November   30,   1997,
                              approximates  the recorded book values  because of
                              the   fluctuating   interest  rates.  It  was  not
                              practical  to  determine  the  fair  value  of the
                              amount due to affiliate,  because of the uncertain
                              repayment terms.


                                      F-12


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements


                              LONG-LIVED ASSETS

                              During  1995,  SFAS No. 121,  "Accounting  for the
                              Impairment of Long-lived Assets and for Long-lived
                              Assets to Be Disposed  Of",  was issued.  SFAS 121
                              requires the Company to review  long-lived  assets
                              and certain  identifiable  assets related to those
                              assets for impairment  whenever  circumstances and
                              situations change such that there is an indication
                              that the carrying  amounts may not be recoverable.
                              If  the  undiscounted  future  cash  flows  of the
                              enterprise are less than their  carrying  amounts,
                              their  carrying  amounts are reduced to fair value
                              and  an   impairment   loss  is   recognized.   No
                              impairment  losses  have  been  necessary  through
                              November 29, 1998.

                              INCOME/(LOSS) PER SHARE

                              The Company  adopted SFAS No. 128,  "Earnings  Per
                              Share,"  ("EPS") which requires a presentation  of
                              basic EPS and  diluted  EPS.  Basic  EPS  excludes
                              dilution  and  is  computed  by  dividing  earning
                              available   to   common    stockholders   by   the
                              weighted-average    number   of   common    shares
                              outstanding  for the  period.  Diluted EPS assumes
                              conversion of convertible debt and the issuance of
                              common  stock for all other  potentially  dilutive
                              equivalent shares outstanding.  Diluted EPS is not
                              shown since it is anti-dilutive.

                              RECENT ACCOUNTING PRONOUNCEMENTS

                              SFAS No. 130,  "Reporting  Comprehensive  Income",
                              requires an entity to report  comprehensive income
                              and its  components  for  fiscal  years  beginning
                              after December 15, 1997. The Company believes SFAS
                              No. 130 will have  little,  if any,  effect on the
                              information  already  disclosed  in the  Company's
                              financial statements.


                                      F-13


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements


                              SFAS No. 131,  "Disclosures  About  Segments of an
                              Enterprise  and Related  Information"  requires an
                              entity  to  report   financial   and   descriptive
                              information   about   its   reportable   operating
                              segments for fiscal years beginning after December
                              15, 1997.  The Company  believes SFAS No. 131 will
                              have  little,  if any,  effect on the  information
                              already  disclosed  in  the  Company's   financial
                              statements.

                              SFAS   No.   133   "Accounting   for   Derivatives
                              Instrument  and  Hedging  Activities"  establishes
                              accounting and reporting  standards for derivative
                              instruments.  The  Company has not in the past nor
                              does  it  anticipant,   that  it  will  engage  in
                              transactions   involving  derivative   instruments
                              which will impact the financial statements.

                              Statement of Position  98-1,  "Accounting  for the
                              Costs of Computer  Software  Developed or Obtained
                              for Internal  Use",  requires an entity to expense
                              all  software  development  costs  incurred in the
                              preliminary project stage, training costs and data
                              conversion  costs for fiscal years beginning after
                              December 15, 1998. The Company  believes that this
                              statement  will not have a material  effect on the
                              Company's   accounting   for   computer   software
                              acquisitions.

                              Statement  of  Position  98-5,   "Accounting   for
                              Start-up Costs", requires an entity to expense all
                              start-up  related  costs as  incurred  for  fiscal
                              years  beginning  after  December  15,  1998.  The
                              Company believes that this statement will not have
                              a material effect on the Company's  accounting for
                              start-up costs.


                                      F-14


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements


3.   Acquisition of The Food
     Group                    
                              As  discussed  in  Note  1,  the  following  table
                              reflects  unaudited pro forma combined  results of
                              operations  of  Sloan's  and The Food Group on the
                              basis that the  acquisition had taken place at the
                              beginning  of the 1997 fiscal year for each of the
                              periods presented.


                               36 weeks ended             52 weeks ended
                              November 9, 1997            March 2, 1997
========================  ========================= ==========================
  Revenues                      $101,157,570               $150,721,403
  Operating income                 1,679,004                 11,085,809
========================  ========================= ==========================

                              In management's  opinion,  the unaudited pro forma
                              combined  results of operations are not indicative
                              of the actual results that would have occurred had
                              the acquisition  been consummated on March 4, 1996
                              or of future operations of the combined  companies
                              under the ownership and management of GRI.


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements


4.   Related  Party  
     Transactions             (a) On  February  6,  1998 the  Company  purchased
                              substantially   all  of  the  assets  and  assumed
                              certain  of  the   liabilities  of  a  supermarket
                              located at 1644 York  Avenue,  New York,  New York
                              owned  by  a   corporation   controlled   by  John
                              Catsimatidis.  The acquisition was recorded at its
                              book value of approximately $31,000, subject to an
                              appraisal.  The purchase  price is to be the value
                              of the  supermarket  based upon an appraisal to be
                              conducted  by a firm  selected by a  committee  of
                              independent  directors  of the  Company  less  the
                              amount  of  certain  liabilities  assumed  by  the
                              Company.  The  appraisal  will be based on,  among
                              other things, a review of the operating  statement
                              of the supermarket for the period from February 6,
                              1998 to a date no earlier  than  January 31, 1999.
                              The purchase  price will be subject to  adjustment
                              to the  extent  that  the  acquired  inventory  is
                              greater or less than the sum of trade  payable and
                              liabilities  for  employee  vacation  and sick pay
                              that  have  been  assumed  by  the  Company.   The
                              purchase  price  will be paid at such  time and by
                              such method as shall be recommended by a committee
                              of the  independent  directors  of the Company and
                              approved by the Board of Directors of the Company,
                              John Catsimatidis abstaining.

                              (b) The  Company had  advanced  funds to a company
                              owned by the Chairman of the Board who is also the
                              principal   stockholder  of  the  Company.  As  of
                              November   30,   1997,   the   Company   was  owed
                              approximately  $352,000,   including  $148,000  of
                              accrued  interest.  Such advances bear interest at
                              prime plus 1.25% per annum  (9.75% at November 30,
                              1997).  During the 1998 fiscal year these advances
                              were fully repaid.

                              (c)  The  Company  and  The  Food  Group  allocate
                              volume,  advertising  and other rebates.  Rebates,
                              whether  allocated or directly  attributed  to the
                              Company,  are  recorded as  reductions  to cost of
                              sales or advertising  expense over the life of the
                              related agreement.  Rebates recorded as reductions
                              to  expenses  approximated  $  4.8  million,  $0.4
                              million,  $1.5 million and $3.2 million for the 52
                              weeks ended  November 29, 1998,  the 3 weeks ended
                              November  30, 1997 the 36 weeks ended  November 9,
                              1997  and  the   fiscal   ended   March  2,  1997,
                              respectively.


                                      F-15


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements


                              (d)  Prior to the  merger,  Red  Apple  Management
                              Inc., a company wholly owned by John Catsimatidis,
                              provided certain payroll, related employee benefit
                              services  and office  services for The Food Group.
                              Such services included accounting,  merchandising,
                              human resources,  maintenance,  executive salaries
                              and employee  benefits.  During the 36 weeks ended
                              November  9, 1997 and the fiscal  year ended 1997,
                              the Company incurred  approximately,  $2.7 million
                              and $3.8  million,  respectively.  These  services
                              ended on November 9, 1997.

                              (e)  Newspaper  advertising  for  the  Company  is
                              frequently   pooled  with  advertising  for  other
                              supermarkets  which are not owned by the  Company.
                              In such cases,  the Company  pays a  proportionate
                              share of such advertising  expenses based upon its
                              number   of    Supermarkets    covered    in   the
                              advertisements.  Such  amounts  allocated  to  the
                              Company approximated, $388,000 and $319,000 during
                              the 36 weeks ended November 9, 1997 and the fiscal
                              years  ended  March 2, 1997,  respectively.  These
                              services ended on November 9, 1997.

                              (f) Under a Management  Agreement,  dated November
                              10,  1997  (the  "Management  Agreement"),  Namdor
                              Inc.,  a  subsidiary  of  the  Company,   performs
                              consulting  and  managerial   services  for  three
                              supermarkets  owned by corporations  controlled by
                              John   Catsimatidis.   In  consideration  of  such
                              services,  Namdor Inc. is entitled to receive on a
                              quarterly   basis  a  cash   payment  of  one  and
                              one-quarter   (1.25%)  percent  of  all  sales  of
                              inventory  and  merchandise  made at or  from  the
                              managed supermarkets. During the fiscal year ended
                              November  29,  1998  management  fee  income was $
                              119,000.

                              (g) MCV Advertising  Associates Inc. a company 85%
                              owned by John  Catsimatidis  provides  advertising
                              services  to  the  Company.  For  the  year  ended
                              November  29,  1998  the  costs  incurred  were  $
                              1,072,544.


                                      F-16


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements


                              (h)  Mr.  John  Catsimatidis  issued  each  year a
                              limited $ 1,000,000 guarantee of the collection of
                              all   accounts   receivable.    Futhermore,    Mr.
                              Catsimatidis has agreed not to permit the level of
                              the  Company's  liability  due to the affiliate to
                              fall below $  1,000,000,  prior to the issuance of
                              the fiscal year ended  November  29, 1999  audited
                              financial statements.

                              (i) Wolf, Block,  Schorr and Solis Cohen,  LLP,. a
                              law firm of which a director  of the  Company is a
                              member,   charged  the  Company  $219,035,   $-0-,
                              $341,000 and, $194,000 in fees for rendering legal
                              services to the Company  during the 52 weeks ended
                              November  29,  1998,  3 weeks ended  November  30,
                              1997,  36 weeks  ended  November  9,  1997 and the
                              fiscal year ended March 2, 1997, respectively.


                              Capitalized Lease Obligations Due to Affiliate

                              (j) Certain  stores have  entered into capital and
                              operating   leases  with  an  affiliate,   C  &  S
                              Acquisition  Corp,  (formerly  Red Apple  Leasing,
                              Inc).   (a   company    wholly   owned   by   John
                              Catsimatidis). Such leases are primarily for store
                              operating  equipment.  Obligations  under  capital
                              leases at November  29, 1998 and November 30, 1997
                              were  $821,305  and  $1,206,932  respectively  and
                              require monthly  payments of $35,114 through March
                              1, 2001.  Obligations  under  operating  leases at
                              March 2, 1997  require  84  payments  of  $14,594.
                              Obligations under operating leases at June 2, 1997
                              and September 1, 1997 require 60 monthly  payments
                              of $10,783 and $16,297, respectively.


                              Notes Receivable

                              During 1994, the Company sold two stores. Pursuant
                              to the  United  States  Federal  Trade  Commission
                              settlement  agreement  (see Note 12),  the Company
                              also sold four stores during 1996 and 1997. At the
                              time of the  sale,  the  Company  accepted  a note
                              receivable   on  each  store.   These  notes  bear
                              interest at rates of 8.5% to 10% and have terms of
                              4 to 6 years.


                                      F-17


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements



5.   Deferred Costs           At November 29, 1998 and November 30, 1997

<TABLE>
<CAPTION>

                                                                                                     Amortization
                                                                       1998           1997             period
                                                                   -----------    -----------        -----------
<S>                                                                <C>            <C>                <C>    
                              Acquisition costs ................   $ 1,315,119    $   834,316        5 years
                              Non-compete covenants ............       790,316        790,316        10 years
                              Debt costs .......................       559,215        254,528        5-10 years
                              Other ............................       129,848        122,263        5-11 years
                              Accumulated amortization .........      (825,639)      (486,419)     
                              ------------------------------------   -----------    -----------      -----------
                              Net deferred costs .................   $ 1,968,859      1,515,004    
                              ====================================   ===========    ===========      ===========

</TABLE>


6.   Due to Affiliate         Amounts  due  to  affiliate,   United  Acquisition
                              Corp.,   a   corporation   wholly  owned  by  John
                              Catsimatidis,  represent liabilities in connection
                              with the  consummation  of the merger as discussed
                              in Note 1. The  affiliate has agreed not to demand
                              payment of these  liabilities  in the next  fiscal
                              year.   Accordingly,   the   liability   has  been
                              classified as noncurrent. As of November 29, 1998,
                              $ 3 million  of the amount  due to  affiliate  was
                              subordinated   to   the   Company's   banks.   The
                              Subordination  Agreement  expired on November  30,
                              1998. The liability does not bear interest.


7.   Commitments and 
     Contingencies            The   Company   operates   primarily   in   leased
                              facilities,  under noncancelable  operating leases
                              expiring at various dates  through  2018.  Certain
                              leases  provide for  contingent  rents (based upon
                              store sales exceeding stipulated amounts or on the
                              Consumer  Price  Index),  escalation  clauses  and
                              renewal  options  ranging  from  five  to  fifteen
                              years.  The Company is obligated  under all leases
                              to  pay  for  taxes,  insurance  and  common  area
                              maintenance expenses.

                              Rent expense under noncancelable operating leases,
                              including  leases  with  related  parties  for the
                              fiscal periods ended  November 29, 1998,  November
                              30,  1997,  November  9, 1997 and  March 2,  1997,
                              respectively, is as follows:


                                      F-18


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>


                                                                                     36 weeks
                                               52 weeks ended   3 weeks ended         ended  
                                                   November      November 30,      November 9,   52 weeks ended
                                                   29, 1998          1997             1997        March 2, 1997
                              ==============      ==========      ==========       ==========      ==========
<S>                                               <C>             <C>              <C>             <C>       
                              Base rents          $9,108,164      $  450,460       $4,026,056      $4,952,840

                              Contingent rents          --              --            (18,169)         21,461
                                                  ----------      ----------       ----------      ----------
                              Rent expense        $9,108,164      $  450,460       $4,007,887      $4,974,301
                              ==============      ==========      ==========       ==========      ==========

</TABLE>


                              Related party rent expense was $675,750,  $51,823,
                              $446,760  and  $267,000  for  the 52  weeks  ended
                              November  29,  1998,  3 weeks ended  November  30,
                              1997,  36 weeks  ended  November  9,  1997 and the
                              fiscal year ended March 2, 1997, respectively.

                              Future    minimum    lease    commitments    under
                              noncancelable leases as of November 29, 1998 are:


                              Fiscal year ending
                              =========================================
                                1999                        $ 9,218,000
                                2000                          9,411,000
                                2001                          8,635,000
                                2002                          8,077,000
                                2003                          7,332,000
                                Thereafter                   53,629,000
                                                             ----------
                                                           $ 96,302,000
                              =========================================

                              In addition to related party capital  leases (Note
                              4(f)),  the  Company has other  capital  equipment
                              leases.  The net book  value of all  assets  under
                              capital   leases   at   November   29,   1998   is
                              approximately $3.8 million.


                                      F-19


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements


                              The  Future  net  minimum  lease   payments  under
                              capital leases are as follows:


                              Fiscal year ending
                              =================================================
                              1999                                  $ 1,044,414
                              2000                                    1,044,415
                              2001                                      728,385
                              2002                                      623,042
                              2003                                      605,329
                              Thereafter                                504,086
                                                                      ---------
                                                                      4,549,671
                              Less: Amount representing interest        868,000
                                                                      ---------
                              Present value of
                                 net minimum lease payments           3,681,671
                              Due within one year                       695,664
                                                                      ---------
                              Total                                 $ 2,986,007
                              =================================================


8.   Income Taxes             Deferred  tax  expense or benefit is the change in
                              the computed tax asset or liability balance. As of
                              November 29, 1998,  the Company had total deferred
                              tax assets of  approximately  $3,200,000  of which
                              approximately   $1,200,000   is   related  to  net
                              operating loss  carryforwards  which are available
                              to  offset  income  earned in  future  years,  and
                              approximately  $2,000,000 relates to the different
                              tax and book bases of  leasehold  rights.  The net
                              deferred  tax  assets at  November  29,  1998 were
                              offset by valuation allowances of an equal amount.
                              Accordingly,   no  deferred   income   taxes  were
                              recognized  in  any of the  periods.  The  Company
                              believes that it underwent an  "Ownership  change"
                              within the meaning of section 382 of the  Internal
                              Revenue  Code of 1986 and as a future  consequence
                              of the transaction the company's ability to offset
                              its  net  operating  loss  carryforwards   against
                              income  earned  after  the   transaction   may  be
                              limited.   If  any  of  the  net  operating   loss
                              carryforwards, is realized any tax benefit will be
                              credited to additional paid-in-capital.


                                      F-20


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements


9.      Debt              (a) Credit Facility and Term Loan Agreement

                              On November 10, 1997, the Company  entered into an
                              aggregate  $25,000,000  five-year  credit facility
                              with European American Bank, as agent, and certain
                              other participating  banks. The credit facility is
                              comprised of a $12,000,000  five-year term loan, a
                              $8,000,000 five-year term loan line for remodeling
                              and capital  improvements to the Company's  stores
                              and  a  $5,000,000   two-year   revolving   credit
                              facility  for general  working  capital  purposes.
                              Borrowings  under the facility  bear interest at a
                              "spread"  over  either  the  bank's  prime rate or
                              LIBOR  rates,  with the  spread  dependent  on the
                              ratio  of the  Company's  funded  debt  to  EBITDA
                              ratio,  as defined in the  credit  agreement.  The
                              credit      facility      contains      covenants,
                              representations  and events of default  typical of
                              credit facility  agreements,  including  financial
                              covenants which require the Company to meet, among
                              other things, a minimum  tangible net worth,  debt
                              service  coverage ratios and fixed charge coverage
                              ratios,   and  which   limit   transactions   with
                              affiliates.  The facility is secured by equipment,
                              inventories and accounts receivable.


                                      F-21


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements

                              Long-term  debt at November  29, 1998 and November
                              30, 1997 consists of the following:

<TABLE>
<CAPTION>

  November 29, 1998                                                                            Nov. 29, 1998           Nov. 30, 1997
==================================================================================             =============           =============
<S>                                                                                             <C>                      <C>        
   Term loan payable to banks due October 31, 2002 
   Interest on prime-based loans is payable monthly 
   in arears and interest on LIBOR-based loans is
   payable at the end applicable interest period;
   payable in 59 monthly installments of $142,857
   beginning December 1, 1997 with the 60th such
   installment being the then outstanding principal amount .......................              $10,285,716              $12,000,000

   Revolving loan payable to bank, due November 29,
   1999.  Interest on prime-based loans is payable monthly 
   in arears and interest on LIBOR-based loans is
   payable at the end applicable interest period .................................                5,000,000                1,000,000

   Improvement term loan payable to banks due
   October 31, 2002.  Interest on prime-based loans 
   is payable monthly in arears and interest on 
   LIBOR-based loans is payable at the end applicable 
   interest period; principal is payable in monthly
   installments of $133,333 with the then out standing
   principal amount payable as the last installment ..............................                6,692,502                1,000,000
                                                                                                 ----------               ----------
                                                                                                 21,987,218               13,000,000
   Less: Current portion .........................................................                3,314,283                1,714,284
                                                                                                 ----------               ----------
                                                                                                $18,663,935              $11,285,716
                                                                                                ===========              ===========

</TABLE>


                              Interest on prime-based  loans is payable  monthly
                              in arrears and  interest on  LIBOR-based  loans is
                              payable  at the  end of  the  applicable  interest
                              period.

                              During  the  year  ended  November  29,  1998  the
                              interest  rates  ranged from 7.72% to 8.28% on the
                              LIBOR-based  loans and from  8.50% to 9.25% on the
                              prime-based loans.

                              During the three weeks ended  November  30,  1997,
                              the  interest  rate was 9.25%  (collateralized  by
                              certain   assets   of   the   Company,   including
                              receivables, inventory, and store equipment)

                              The loans are  collateralized by certain assets of
                              the Company, including receivables,  inventory and
                              store equipment.


                                      F-22


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements


                              Principal  maturities  of  long-term  debt  as  of
                              November 29, 1998:


                                Fiscal year ending
                              ===========================================
                                1999                         $  3,314,283
                                2000                            8,314,283
                                2001                            3,314,283
                                2002                            7,035,369
                                                             ------------
                                                             $ 21,978,218
                              ===========================================


10.  Retirement Plans         The  Company   participates   in  various  defined
                              contribution  multi-  employer union pension plans
                              which are  administered  jointly by management and
                              union representatives and which sponsor most full-
                              time and certain  part-time union  employees.  The
                              pension  expense  for  these  plans   approximated
                              $786,000,  $153,000,  $369,000 and $697,000 in the
                              52 weeks  ended  November  29,  1998,  the 3 weeks
                              ended  November 30, 1997, 36 weeks ended  November
                              9, 1997,  and the fiscal year ended March 2, 1997,
                              respectively.  The Company  could,  under  certain
                              circumstances,   be  liable  for  unfunded  vested
                              benefits or other expenses of jointly administered
                              union/management plans.

11.  Stock Option Plans       The  following  stock  option  plans were  carried
                              forward by The Food Group from Sloan's:

                              On  October  7,  1994,  the  Company  granted  the
                              Chairman a non-qualified  stock option to purchase
                              an aggregate of 275,000  shares of common stock at
                              a price of $3.75 per share (the fair market  value
                              at that date).

                              On  August  12,  1996,  the  Company  granted  the
                              Chairman a non-qualified  stock option to purchase
                              an aggregate of 250,000  shares of common stock at
                              a  price  of  $2.875  per  share.


                                      F-23


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements


                              The Company  currently has one incentive grant and
                              five nonqualified grants under which stock options
                              may be  granted  to  officers,  directors  and key
                              employees  of  the  Company  - the  1994  Employee
                              Incentive  Grant  (the  "1994  Grant"),  the  1994
                              Nonqualified Grant (the "1994 NQ Grant"), the 1995
                              Chairman's  Nonqualified  Options (the "Chairman's
                              Grant"),  the 1994 Director's  Nonqualified  Grant
                              (the "Directors'  Grant"),  the 1994  Nonqualified
                              Recruitment Grant (the "1994  Recruitment  Grant")
                              and the 1998 stock option  plan("The  1998 Plan").
                              The  options to  purchase  shares of common  stock
                              generally  are issued at fair market  value on the
                              date of the  grant,  begin  vesting on the date of
                              the grant,  and expire ten years from issuance and
                              are conditioned upon continual  employment  during
                              the vesting period.

                              Under  the 1994  Grant,  the 1994 NQ Grant and The
                              1998 Plan, the Company granted options to purchase
                              up to  100,000,  35,000,  and  500,000  shares  of
                              common stock, respectively.

                              In  addition  to  the  one  incentive  grant,  the
                              Company has granted  stock  options to certain key
                              executives  and  directors.  The options vest over
                              five years and  contractual  lives of these grants
                              are similar to that of the incentive plan.

                              The   Company   applies   APB   Opinion   No.  25,
                              "Accounting  for Stock Issued to  Employees,"  and
                              related   interpretations  for  its  stock  option
                              grants.  Generally,  compensation  expense  is not
                              recognized for stock option grants.

                              In accordance  with SFAS No. 123,  "Accounting for
                              Stock-based  Compensation",  the Company discloses
                              the pro  forma  impact of  recording  compensation
                              expense  utilizing the  Black-Scholes  model.  The
                              Black-Scholes option valuation model was developed
                              for use in  estimating  the fair  value of  traded
                              options which have no vesting restrictions and are
                              fully transferable.  In addition, option valuation
                              models  require  the  input of  highly  subjective
                              assumptions  including  the  expected  stock price
                              volatility.  Because the  Company's  stock options
                              have characteristics  significantly different from
                              those of traded  options,  and because  changes in
                              the subjective  input  assumptions  can materially
                              affect the fair value  estimate,  in  management's
                              opinion,   the   Black-Scholes   model   does  not
                              necessarily provide a reliable measure of the fair
                              value of its stock options.

                              The accounting  provisions of SFAS No. 123 did not
                              have an effect on the Company's earnings per share
                              and thus have not been presented.


                                      F-24


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements



                              A summary  of the  status of the  Company's  stock
                              option plans is presented below: 

<TABLE>
<CAPTION>


                                                                                         Weighted Average
                                                                           Shares         Exercise Price
                              ===================================         ========       ================
                              <S>                                          <C>                 <C>
                              Balance, March 3, 1996                       464,000             4.27
                                  Granted                                     --                --
                                  Exercised                                   --                --
                                  Forfeited                                 (8,000)            5.63
                              Balance, March 2, 1997                       456,000             4.24
                                  Granted                                  325,000             3.36
                                  Exercised                                   --                --
                                  Forfeited                                 (1,000)            5.63
                              Balance, November 9, 1997                    780,000             3.87
                                  Granted                                     --                --
                                  Exercised                                   --                --
                                  Forfeited                                   --                --
                              Balance, November 30, 1997                   780,000             3.87
                                  Granted                                  500,000             2.63
                                  Exercised                                   --                --
                                  Forfeited                                 20,000             2.63
                                Balance, November 29, 1998               1,260,000             3.37
                              ===================================         ========             ====

</TABLE>

                              Options  exercisable  as of November  29, 1998 and
                              November   30,  1997  were  760,000  and  773,400,
                              respectively.  

                              All  options  prior  to  November  10,  1997  were
                              assumed from Sloan's by the Company.


                                      F-25


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements


                              The following table  summarizes  information as of
                              November  29,  1998  concerning   outstanding  and
                              exercisable options:

<TABLE>
<CAPTION>

                                                        Options Outstanding                        Options Exercisable
                                                ------------------------------------------    ----------------------------
                                                                 Weighted
                                                                  Average       Weighted                         Weighted
                                                                 Remaining       Average                          Average
                                 Range of           Number      Contractual     Exercise         Number          Exercise
                              exercise prices    Outstanding       Life          Price         Exercisable        Price
                              ===============   =============   ============   ===========    =============   ============
                              <S>                     <C>               <C>          <C>            <C>              <C>  
                                        $3.75         275,000           4.94         $3.75          275,000          $3.75
                                         5.63          26,000           5.06          5.63           26,000           5.63
                                         5.63          82,000           5.06          5.63           82,000           5.63
                                         3.81          30,000           5.95          3.81           30,000           3.81
                                         3.81          22,000            .94          3.81           26,400           3.81
                                         2.87         250,000           8.75          2.87          250,000           2.87
                                         5.00          75,000           3.75          5.00           75,000           5.00
                                         2.63         500,000           9.5           2.63                0           2.63
                              ---------------   -------------   ------------   -----------    -------------   ------------
                                    2.87-5.63       1,260,000           7.40          3.37          760,000           3.84
                              ===============   =============   ============   ===========    =============   ============

</TABLE>


12.  Litigation               In June 1994,  the  United  States  Federal  Trade
                              Commission   (the  "FTC")   commenced   an  action
                              alleging that certain acquisitions  consummated by
                              Mr. John Catsimatidis, the Company and three other
                              entities (the "Red Apple entities")  controlled by
                              Mr.  Catsimatidis,  including  corporations  which
                              presently    own    the     acquisition     stores
                              (collectively,  the  "companies")  of  32  Sloan's
                              supermarkets   between  1991  and  1993   violated
                              Federal  antitrust  laws because the effect of the
                              acquisitions  might  be  substantially  to  lessen
                              competition   among   supermarkets   within   four
                              Manhattan residential neighborhoods. The complaint
                              indicated  that the FTC could seek  divestiture of
                              up to ten supermarkets owned by the companies.


                                      F-26


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements


                              In  order  to  avoid  the   costs  of   protracted
                              litigation  in the  matter and  without  admitting
                              that any  antitrust law was violated as alleged in
                              the complaint, on November 21, 1994, the companies
                              entered into a settlement  agreement  against them
                              (the "Settlement Agreement"). The companies agreed
                              in the  Settlement  Agreement  that within  twelve
                              months  from  the  date  of a final  order  in the
                              proceeding  they  would  divest  themselves  of an
                              aggregate of six supermarkets in Manhattan, chosen
                              by  them  from  a  list  of  sixteen  supermarkets
                              specifically    designated   in   the   Settlement
                              Agreement  (none of which were  owned by  Sloan's)
                              and certain alternate  supermarkets  referenced in
                              the Settlement  Agreement (five of which were then
                              owned  by  Sloan's).  Nothing  in  the  Settlement
                              Agreement required Sloan's to divest itself of any
                              of its supermarkets, but any supermarkets divested
                              by Sloan's  counted  towards  satisfaction  of the
                              divesture obligations.

                              An order  embodying the  Settlement  Agreement was
                              made  effective   March  6,  1995  (the  "Order").
                              Pursuant to that Order,  for a period of ten years
                              from March 6, 1995, the companies cannot,  without
                              prior FTC  approval,  acquire any  interest in any
                              existing  supermarket  in a designated  area.  The
                              Order  does  not  restrict  the   companies   from
                              acquiring an interest in a supermarket  by leasing
                              or  purchasing a new location  that at the time of
                              acquisition  (and  for  six  months  prior  to the
                              acquisition)   is   not   being   operated   as  a
                              supermarket.

                              In March 1996, an application (the  "Application")
                              was  made to  modify  the  Order so as to lift the
                              divesture  requirements other than with respect to
                              one  store on the Upper  West  Side  which was not
                              owned by Sloan's.  The FTC approved the  divesture
                              of that store and its  divesture  was completed on
                              May 9, 1996.  On April 29, 1996,  the  Application
                              was revised;  and it was further revised in August
                              and  September  so as to seek  relief  solely with
                              respect to the  requirement  of  divesture  of any
                              supermarkets  in the Chelsea section of Manhattan.
                              On  September  13,  1996,   the  FTC  granted  the
                              Application   as   modified,   and   deleted   the
                              requirement    of    divestiture    in    Chelsea.
                              Simultaneously,  the FTC  appointed  a trustee  to
                              divest four supermarkets pursuant to the Order, as
                              modified.   The   trustee   was  not  granted  any
                              authority  to  divest  until  the FTC  approved  a
                              trustee  agreement  between  the  trustee  and the
                              companies.

                              Subsequent to the  modification of the Order,  The
                              Food Group  sold an  aggregate  of four  stores in
                              compliance  with the  divestiture of the Order, as
                              modified. Based thereon, the trustee agreement did
                              not become effective.


                                      F-27


<PAGE>


                            Gristede's Sloan's, Inc.
                                and Subsidiaries


                   Notes to Consolidated Financial Statements


                              A settlement of FTC claims based on the companies'
                              failure  to divest  supermarkets  pursuant  to the
                              Order was agreed to,  pursuant  to which  $600,000
                              was paid to the FTC. The $600,000  payment was not
                              borne by The Food Group or Sloan's.

                              The  companies may at times be involved in various
                              legal proceedings which are routine and incidental
                              to the conduct of its  business.  The companies do
                              not believe  that any current  litigation,  either
                              individually  or in the  aggregate,  could  have a
                              material adverse effect on the financial condition
                              or results of operations of the companies.

                              On August 8, 1994,  a lawsuit  against the Company
                              and Mr.  Catsimatidis was instituted in the United
                              States District Court for the Southern District of
                              New York by RMED International,  Inc. ("RMED"),  a
                              former stockholder of the Company.

                              The complaint  alleges,  among other things,  that
                              RMED and a purported  class  consisting of persons
                              who  purchased  the  Company's  common stock on or
                              after  March 19,  1993  were  damaged  by  alleged
                              nondisclosures  in  certain  filings  made  by the
                              Company   with   the   Securities   and   Exchange
                              Commission  between  January  1993 and  June  1994
                              relating  to an  investigation  by  the  FTC.  The
                              complaint   alleges   that   such   nondisclosures
                              constituted  violations  of  Federal  and New York
                              State  securities  laws,  as  well as  common  law
                              fraud,  and  seeks  damages  (including   punitive
                              damages) in an  unspecified  amount  (although  in
                              discovery  proceedings,  the named  plaintiff  has
                              claimed  that  its  damages   were   approximately
                              $800,000)  as well as costs and  disbursements  of
                              the action.  On June 2, 1994, the Company issued a
                              press release which disclosed the FTC action.

                              In June 1995,  Plaintiff  filed a motion for class
                              certification,  and discovery was held in abeyance
                              pending disposition of that motion. The motion was
                              granted in March 1996.  Discovery was completed in
                              December  1998.   Management   believes  that  the
                              lawsuit is without merit and intends to vigorously
                              defend the action;  however, the outcome cannot be
                              determined.


                                      F-28


<PAGE>


                                    PART III

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

None.


Item 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Set forth below is certain  information  as of February 25, 1999 with respect to
all directors and executive officers of the Company.


                                            Position with the Company or
                        Director             Other Principal Occupation
Name and Age             Since                 for the Past Five Years
------------             -----              -----------------------------

John A. Catsimatidis    1988(1)     Chairman of the Board,  President  and Chief
      (50)                          Executive  Officer of the Company since July
                                    28, 1988; Treasurer of the Company from July
                                    28, 1988 to March 17,  1998;  President  and
                                    Chief Executive  Officer of Red Apple Group,
                                    Inc.   (holding   company  for   supermarket
                                    chains) and  Chairman of the Board and Chief
                                    Executive  Officer  and  Director  of United
                                    Refining  Company (a refiner and retailer of
                                    petroleum   products)  for  more  than  five
                                    years; Director of News Communications Inc.,
                                    a  public  company  whose  stock  is  traded
                                    over-the-counter, since December 4, 1991.

Martin R. Bring         1988        Member  of the  law  firm  of  Wolf,  Block,
      (56)                          Schorr and  Solis-Cohen  LLP, New York, N.Y.
                                    and  predecessor  firm  for more  than  five
                                    years.

Frederick Selby         1978        Chairman   of   Selby    Capital    Partners
      (61)                          (acquisition  and  sale of  privately  owned
                                    firms and divisions of public companies) for
                                    more than five years.

Kishore Lall            1997        Director of the Company since October, 1997;
      (51)                          consultant  to Red Apple  Group,  Inc.  from
                                    January  1997  to  October   1997;   private
                                    investor  from June 1994 to  December  1996;
                                    Senior Vice President and Head of Commercial
                                    Banking ABN AMRO Bank,  New York branch from
                                    January 1991 until May 1994.

--------  

(1)    Mr.  Catsimatidis  also served as a director of the Company from November
4, 1986 to November 27, 1987.

                                       16

<PAGE>

                                            Position with the Company or
                        Director             Other Principal Occupation
Name and Age             Since                 for the Past Five Years
------------             -----              -----------------------------

Dennis E. Berberich     1998        Independent  consultant.  Prior to  January,
      (60)                          1999,   President  of  Canada  Dry  Bottling
                                    Company of New York,  a privately  held soft
                                    drink  distributor,  for more than ten years
                                    prior thereto.

Martin Steinberg        1998        Independent  consultant.  Mr Steinberg  also
      (65)                          served as a director of the Company from May
                                    1974 to January 1991.

Stuart Spivak            --         Executive Vice President and Chief Financial
      (62)                          Officer of the Company since March 17, 1998;
                                    Chief  Financial  Officer  of the Food Group
                                    for more than ten years prior thereto.

Michael Seltzer          --         Vice  President and Secretary of the Company
      (49)                          since March 17,  1998;  Vice  President  and
                                    Controller  of the Food  Group for more than
                                    ten years prior thereto.

Section 16(a) Beneficial Ownership Reporting Compliance

       Section  16(a) of the  Securities  Exchange Act of 1934,  as amended (the
"Exchange Act"),  requires directors and officers of the Company and persons who
own  more  than 10  percent  of the  Company's  common  stock  to file  with the
Securities  and  Exchange  Commission  (the  "Commission")  initial  reports  of
ownership  and reports of changes in ownership of the common  stock.  Directors,
officers and more than 10 percent  stockholders are required by the Exchange Act
to furnish the Company with copies of all Section 16(a) forms they file.

       To the  Company's  knowledge,  based  solely on a review of the copies of
such reports furnished to the Company and written  representations that no other
reports were required  during fiscal 1998, all Section 16(a) filings  applicable
to its  directors,  officers  and more than 10 percent  beneficial  owners  were
timely filed.


Item 11.          EXECUTIVE COMPENSATION.

     The following table sets forth for the fiscal year ended November 29, 1998,
the  Transition  Period from March 3, 1997 to  November  30, 1997 and the fiscal
year ended March 2, 1997 certain information concerning the compensation paid or
accrued to the Chief  Executive  Officer of the Company.  During these  periods,
there were no persons  serving as executive  officers of the Company whose total
salary and bonus exceeded $100,000.


                                       17

<PAGE>
<TABLE>
<CAPTION>


                                                                                             Long-term Compensation
                                                                                     ------------------------------------
                                                   Annual Compensation                        Awards              Payouts
                                            -----------------------------------      ----------------------       -------
                                                                        Other                                                   All
                                                                        annual       Restricted                                other
Name and                                                                compen-        stock        Options        LTIP       compen
principal                                   Salary        Bonus         sation        award(s)      /Sar's        payouts     sation
position                  Year                ($)          ($)            ($)           ($)          (#)           ($)
------------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>                 <C>           <C>           <C>           <C>           <C>          <C>           <C>
John Catsimatidis,        1998                $-            $-            $-            $-            -            $-            $-
  Chairman of the
  Board, President    Transition               -             -             -             -            -             -             -
  and Chief           Period from
  Executive           March 3, 1997
  Officer             to November
                      30, 1997

                          1997                 -             -             -             -            -             -             -
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


Stock Options

     No stock  options were granted to or exercised by Mr.  Catsimatidis  during
the fiscal year ended November 29, 1998. The following  table sets forth certain
information  with  respect  to  options to  purchase  Common  Stock held by John
Catsimatidis on November 29, 1998.


                         Number of Unexercised            Value of Unexercised
                            Options Held on              in-the-Money Options on
                            November 29, 1998              November 29, 1998
Name                   Exercisable/Unexercisable       Exercisable/Unexercisable
--------------------------------------------------------------------------------
John Catsimatidis             525,000/0                          0/0
--------------------------------------------------------------------------------


     The closing sales price of the Common Stock on the American  Stock Exchange
on November 25, 1998 (the last trading day before  November 29, 1998) was $2.31.
On November 29, 1998 Mr. Catsimatidis held options to purchase 275,000 shares of
Common Stock at $3.75 per share and options to purchase 250,000 shares at $2.875
per share.


Compensation of Directors

     Non-officer  directors  receive a quarterly  stipend of $1,500 and $500 for
each meeting attended.  Directors who serve on committees  receive $250 for each
meeting attended.


                                       18

<PAGE>


Compensation Committee Interlocks and Insider Participation

     The Board of Directors  has a  Compensation  Committee  of which  Frederick
Selby is  currently  the sole  member.  Mr.  Selby is not and has never  been an
employee or officer of the  Company.  During  fiscal  1998 Mr.  Selby has had no
relationship  with the  Company  requiring  disclosure  under Item 13.  "Certain
Relationships and Related Transactions."


Item 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT.

     The following table sets forth certain  information  regarding ownership of
Common Stock on February 25, 1999 by: (i) each stockholder  known to the Company
to own beneficially more than 5% of the outstanding shares of Common Stock; (ii)
each of the  Company's  directors;  and (iii) all officers and  directors of the
Company  as a group.  The number of shares  listed in the table as  beneficially
owned by John Catsimatidis includes all shares acquired in the Merger. Except as
otherwise indicated, the address of each person is c/o Gristede's Sloan's, Inc.,
823 Eleventh  Avenue,  New York,  N.Y.  10019-3535.  The Company  believes  that
ownership  of the  shares  by the  persons  named  below is both of  record  and
beneficial and such persons have sole voting and  investment  power with respect
to the shares indicated.



Name and Address of                            Number of        
 Beneficial Owner                               Shares          Percent of Class
------------------------------------         -------------      ----------------
John Catsimatidis                            18,279,750(1)                 90.5%
Frederick Selby                                  13,110(2)                   *
Martin Bring                                     11,000(2)                   *
Kishore Lall                                     15,000                      *
Martin Steinberg                                112,642                      *
2042 Whalen Ave                             
Merrick, NY 11566                           
Dennis Berberich                                 20,000                      *
128 Montery Ave                             
Pelham, NY 10803                            
All officers and directors as a group        18,489,502(3)                 90.6%
(8 persons)                             

---------
*    Less than 1%.

(1)  Includes an aggregate of 12,416,174 shares held by corporations  controlled
     by Mr.  Catsimatidis,  13,000 shares held by Mr. Catsimatidis as custodian,
     2,057 shares held by a profit sharing plan of which Mr.  Catsimatidis  is a
     trustee,  605 shares held by Mr.  Catsimatidis  as a trustee of  individual
     retirement  accounts  and  currently  exercisable  options to  purchase  an
     aggregate of 525,000 shares of Common Stock.

(2)  Includes for each of Messrs. Selby, and Bring an aggregate of 11,000 shares
     of Common  Stock which may be  purchased  upon the  exercise  of  currently
     exercisable stock options.

(3)  Includes  an  aggregate  of  563,000  shares of Common  Stock  which may be
     purchased upon the exercise of currently exercisable stock options.


                                       19

<PAGE>


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Under a Management  Agreement,  dated  November  10, 1997 (the  "Management
Agreement"),  Namdor Inc., a subsidiary of the Company,  performs consulting and
managerial  services for three supermarkets owned by corporations  controlled by
John Catsimatidis. In consideration of such services, Namdor Inc. is entitled to
receive  on a  quarterly  basis a cash  payment of one and  one-quarter  (1.25%)
percent of all sales of inventory  and  merchandise  made at or from the managed
supermarkets.  During the fiscal year ended  November  29, 1998  management  fee
income was $ 119,000.

     On February 6, 1998 the Company  purchased  substantially all of the assets
and assumed  certain of the  liabilities  of a supermarket  located at 1644 York
Avenue,  New  York,  New  York  owned  by  a  corporation   controlled  by  John
Catsimatidis.  The purchase  price is to be the value of the  supermarket  based
upon  an  appraisal  to be  conducted  by a  firm  selected  by a  committee  of
independent  directors  of the  Company  less the amount of certain  liabilities
assumed by the Company.  The appraisal  will be based on, among other things,  a
review  of the  operating  statement  of the  supermarket  for the  period  from
February 6, 1998 to a date no earlier than January 31, 1999.  The purchase price
will be subject to  adjustment  to the extent  that the  acquired  inventory  is
greater or less than the sum of trade  payables  and  liabilities  for  employee
vacation and sick pay that have been assumed by the Company.  The purchase price
will be paid at such  time  and by such  method  as shall  be  recommended  by a
committee of the independent  directors of the Company and approved by the Board
of Directors of the Company, John Catsimatidis abstaining.

     In consideration of  accommodations  extended to the Company by H.S. Realty
Corp. ("H.S.  Realty"),  a corporation  wholly owned by John Catsimatidis  which
enabled the Company to consummate the sale of assets of the Company's  Howard H.
Sweet & Son Inc.  subsidiary  ("Sweet") to Tiffco Jewelry and Chain Crafts, Inc.
("Tiffco"),  on January 23, 1990, the Company,  among other things,  advanced to
H.S. Realty approximately $204,000.

     The  $204,000  advance was  originally  to be  repayable  on the earlier of
January 23, 1991 or five days after the sale by H.S. Realty to Tiffco of certain
real property  leased to Tiffco by H.S.  Realty after the sale of assets.  Since
January 23, 1991,  the Board of Directors has extended the repayment date of the
advance on an annual basis,  the most recent  extension  being until January 23,
1999 or five days after the sale by H.S. Realty to Tiffco of the Sweet Property.
Such  indebtedness  was fully repaid  during the fiscal year ended  November 29,
1998.

     Effective as of January 1, 1994, the Company  entered into  Indemnification
Agreements  with each of its directors and officers other than Kishore Lall. The
Company entered into an Indemnification Agreement with Kishore Lall effective as
of October 30, 1997, and also entered into Indemnification  Agreements with each
of Stuart Spivak, and Michael Seltzer effective March 17, 1998, Martin Steinberg
effective July 21, 1998 and Dennis  Berberich  effective  August 18, 1998.  Said
agreements  supplement the  indemnification  provisions of the Company's By-laws
and the  Delaware  General  Corporation  Law.  The  stockholders  of the Company
authorized the Company to enter into such  agreements with each of its directors
at the Annual  Meeting of  Stockholders  held on August 21,  1987.  The Board of
Directors has authorized the Company to enter into such  agreements with each of
its officers.

     C & S Acquisition Corp. (formerly,  Red Apple Leasing, Inc.,) a corporation
wholly owned by John Catsimatidis,  leases equipment to the Company. Such leases
are primarily for store operating equipment. Obligations under capital leases at
November 29, 1998 were $821,305 and require monthly  payments of $35,114 through
March 1, 2001.  Obligations under operating leases were $41,676 per month during
fiscal 1998.


                                       20

<PAGE>


     Advertising  services  are  provided  to the  Company  by  MCV  Advertising
Associates  Inc., a company 85% owned by John  Catsimatidis.  For the year ended
November 29, 1998 the costs incurred were $1,072,544.

     On  February  27,  1999,  John  Catsimatidis  issued a  limited  $1,000,000
guarantee of the collection of accounts  receivable assigned to the Company as a
result of the Merger on  November  10,  1997.  In order to cover his  contingent
liability,  Mr.  Catsimatidis  agreed  not  to  permit  the  liabilities  to Mr.
Catsimatidis  and certain of his affiliates which were assumed by the Company in
the Merger to fall  below  $1,000,000  prior to the  issuance  of the  Company's
audited financial statements for the fiscal year ending November 28, 1999.

     By  virtue  of his  ownership  of  Common  Stock  (see  Item 12.  "Security
Ownership  of Certain  Beneficial  Owners and  Management")  and his position as
Chairman of the Board of the Company,  John  Catsimatidis  may be deemed to be a
"parent" of the Company under rules promulgated by the Commission.

     The Company  leases three  locations  from Red Apple Real  Estate,  Inc., a
company  solely owned by John  Catsimatidis.  During the 52 weeks ended November
29, 1998 the Company paid to Red Apple Real Estate,  Inc.  $605,373 for rent and
real estate taxes under such leases.

     Wolf, Block,  Schorr and Solis-Cohen LLP, a law firm of which Martin Bring,
a director of the Company, is a member,  received fees of approximately $219,035
for rendering  legal  services to the Company during the 52 weeks ended November
29, 1998.


                                     PART IV

Item 14.     EXHIBITS,  FINANCIAL STATEMENTS SCHEDULES  AND REPORTS ON FORM 8-K.

(a)  (1)     Financial Statements

     A list  of all  financial  statements  filed  as part  of  this  report  is
contained  in the  index  to Item 8,  which  index  is  incorporated  herein  by
reference.

     (2)     Financial Statement Schedules

             None.

     (3) Exhibits

Number        Description
------        -----------
3.1           Amended  and  Restated   Certificate  of   Incorporation   of  the
              Registrant.  Incorporated  by  reference  to  Exhibit  3.1  to the
              Registrant's  Annual  Report on Form 10-K of the fiscal year ended
              February 28, 1990 (the "1990 10-K").


                                       21

<PAGE>


3.2           Certificate  of Amendment to Amended and Restated  Certificate  of
              Incorporation  of the  Registrant.  Incorporated  by  reference to
              Exhibit 3.2 to the  Registrant's  Annual Report on Form 10-KSB for
              the fiscal year ended February 27, 1994 (the "1994 10-KSB").

3.3           Amended and Restated  Bylaws of the  Registrant.  Incorporated  by
              reference to Exhibit 3.2 to the 1990 10-K.

3.4           Certificate of Amendment of Certificate  of  Incorporation  of the
              Company,  dated  November 4, 1997.  Incorporated  by  reference to
              Exhibit 3.4 to the Registrant's Annual Report on Form 10-K for the
              transition period ended November 30, 1997 (the "Transition  Period
              10-K").

10.1          Form of  Indemnification  Agreement  dated as of  January  1, 1994
              between  the  Registrant  and  each  director  of the  Registrant.
              Incorporated by reference to Exhibit 10.11 to the 1994 10-KSB.

10.2          Form of  Indemnification  Agreement  dated as of  January  1, 1994
              between  the  Registrant  and  each  officer  of  the  Registrant.
              Incorporated by reference to Exhibit 10.12 to the 1994 10-KSB.

10.3          1994 Stock Option Plan. Incorporated by reference to Exhibit 10.12
              of the Company's  Annual Report on Form 10-KSB for the fiscal year
              ended February 26, 1995 ("1995 10-KSB").

10.4          Director Stock Option Plan.  Incorporated  by reference to Exhibit
              10.13 of the Company's 1995 10- KSB.

10.5          Merger  Agreement.  Incorporated  by reference to Exhibit A to the
              Company's  definitive  Proxy  Statement for the Special and Annual
              Meeting of Stockholders of the Company held on October 31, 1997.

10.6          Loan  Agreement  dated as of November 7, 1997 between the Company,
              European  American Bank ("EAB"),  Israel Discount Bank of New York
              ("IDBNY"), Keybank National Association ("Keybank") and Bank Leumi
              Trust  Company  of  New  York  ("Bank  Leumi").   Incorporated  by
              reference to Exhibit  10.6 to the  Transition  Period  10-K.   All
              exhibits and schedules to the Loan Agreement are omitted,  but the
              Registrant  undertakes  to  provide  copies  of  any or all of the
              foregoing  exhibits and schedules to the  Securities  and Exchange
              Commission upon its request.

10.7          Management  Agreement dated November 10, 1997 between Namdor Inc.,
              G Remainder Corp. and S Remainder Corp.  Incorporated by reference
              to Exhibit 10.7 to the Transition Period 10-K.

10.8          Asset Purchase  Agreement between G Remainder Corp. and Gristede's
              Operating  Corp.  Incorporated by reference to Exhibit 10.8 to the
              Transition  Period 10-K.   All exhibits and schedules to the Asset
              Purchase Agreement are omitted,  but the Registrant  undertakes to
              provide  copies  of  any or all  of  the  foregoing  exhibits  and
              schedules  to the  Securities  and  Exchange  Commission  upon its
              request.

10.9          First  Amendment and Waiver to Loan Agreement dated April 30, 1998
              between the Company,  IDBNY, Keybank and Bank Leumi.  Incorporated
              by reference to Exhibit 10.9 to the Transition Period 10-K.

10.10         1998 Stock Option Plan. Incorporated by reference to Exhibit 10.10
              to the Transition Period 10-K.


                                       22

<PAGE>


10.11         Agreement  dated February 27, 1999 between John  Catsimatidis  and
              the Company.*

10.12         Second  Amendment  to Loan  Agreement  dated as of August 29, 1998
              between the Company,  European American Bank, Israel Discount Bank
              of New York, Keybank and Bank Leumi.*

10.13         Third  Amendment to Loan  Agreement  dated as of November 28, 1998
              between the Company,  European American Bank, Israel Discount Bank
              of New York, Keybank and Bank Leumi.*

11.           Statement re computation of per share income (loss). Not required.

21.           Listing  of the  Company's  subsidiaries  all of which are  wholly
              owned by the Company.

              Subsidiaries                           State of Incorporation
              ------------                           ----------------------
              Namdor Inc.                            New York
              SAC Operating Corp.                    New York
              Gristede's Operating Corp.             New York
              City Produce Operating Corp.           New York
              RAS Operating Corp.                    New York

              The Registrant has one other wholly-owned subsidiary,  the name of
              which is omitted herein because as of February 25, 1999 it did not
              constitute a significant subsidiary.

23.           Consent  of  BDO  Seidman,   LLP  Independent   Certified   Public
              Accountants.*

27.           Financial Data Schedule.

----------------------
*        Filed herewith.

(b)      The Company  did not file any  Current  Reports  on Form 8-K during the
last quarter of the period covered by this report.


                                       23

<PAGE>


                                   SIGNATURES

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

                                      GRISTEDE'S SLOAN'S, INC.


Dated:  March 1, 1999                 By:      /s/ John A. Catsimatidis
                                      ----------------------------------
                                      John A. Catsimatidis
                                      Chairman of the Board




      Signature                            Title                       Date
--------------------------    ---------------------------------    -------------

 /s/ John A. Catsimatidis     Chairman of the Board, President     March 1, 1999
-------------------------     and Chief Executive Office (Chief
John A. Catsimatidis          Executive Officer and Chief
                              Operating Officer)

 /s/ Martin Bring             Director                             March 1, 1999
-------------------------
Martin Bring

 /s/ Frederick Selby          Director                             March 1, 1999
-------------------------
Frederick Selby

 /s/ Kishore Lall             Director                             March 1, 1999
-------------------------
Kishore Lall

 /s/ Stuart Spivak            Executive Vice President and Chief   March 1, 1999
-------------------------     Financial Officer (Chief Financial
Stuart Spivak                 Officer and Chief Accounting
                              Officer)

 /s/ Martin Steinberg         Director                             March 1, 1999
-------------------------
Martin Steinberg

 /s/Dennis Berberich          Director                             March 1, 1999
-------------------------
Dennis Berberich


                                       24

<PAGE>


                            GRISTEDE'S SLOAN'S, INC.
                           ANNUAL REPORT ON FORM 10-K
                               FOR THE FISCAL YEAR
                             ENDED NOVEMBER 29, 1998

Number        Description

3.1           Amended  and  Restated   Certificate  of   Incorporation   of  the
              Registrant.  Incorporated  by  reference  to  Exhibit  3.1  to the
              Registrant's  Annual  Report on Form 10-K of the fiscal year ended
              February 28, 1990 (the "1990 10-K").

3.2           Certificate  of Amendment to Amended and Restated  Certificate  of
              Incorporation  of the  Registrant.  Incorporated  by  reference to
              Exhibit 3.2 to the  Registrant's  Annual Report on Form 10-KSB for
              the fiscal year ended February 27, 1994 (the "1994 10-KSB").

3.3           Amended and Restated  Bylaws of the  Registrant.  Incorporated  by
              reference to Exhibit 3.2 to the 1990 10-K.

3.4           Certificate of Amendment of Certificate  of  Incorporation  of the
              Company,  dated  November 4, 1997.  Incorporated  by  reference to
              Exhibit 3.4 to the Registrant's Annual Report on Form 10-K for the
              transition period ended November 30, 1997 (the "Transition  Period
              10-K").

10.1          Form of  Indemnification  Agreement  dated as of  January  1, 1994
              between  the  Registrant  and  each  director  of the  Registrant.
              Incorporated by reference to Exhibit 10.11 to the 1994 10-KSB.

10.2          Form of  Indemnification  Agreement  dated as of  January  1, 1994
              between  the  Registrant  and  each  officer  of  the  Registrant.
              Incorporated by reference to Exhibit 10.12 to the 1994 10-KSB.

10.3          1994 Stock Option Plan. Incorporated by reference to Exhibit 10.12
              of the Company's  Annual Report on Form 10-KSB for the fiscal year
              ended February 26, 1995 ("1995 10-KSB").

10.4          Director Stock Option Plan.  Incorporated  by reference to Exhibit
              10.13 of the Company's 1995 10-KSB.

10.5          Merger  Agreement.  Incorporated  by reference to Exhibit A to the
              Company's  definitive  Proxy  Statement for the Special and Annual
              Meeting of Stockholders of the Company held on October 31, 1997.

10.6          Loan  Agreement  dated as of November 7, 1997 between the Company,
              European  American Bank ("EAB"),  Israel Discount Bank of New York
              ("IDBNY"), Keybank National Association ("Keybank") and Bank Leumi
              Trust  Company  of  New  York  ("Bank  Leumi").   Incorporated  by
              reference to Exhibit  10.6 to the   Transition  Period  10-K.  All
              exhibits and schedules to the Loan Agreement are omitted,  but the
              Registrant  undertakes  to  provide  copies  of  any or all of the
              foregoing  exhibits and schedules to the  Securities  and Exchange
              Commission upon its request.

10.7          Management  Agreement dated November 10, 1997 between Namdor Inc.,
              G  Remainder   Corp.  and   S  Remainder  Corp.  Incorporated   by
              reference to Exhibit  10.7 to the  Transition  Period  10-K.


                                       25

<PAGE>


10.8          Asset Purchase  Agreement between G Remainder Corp. and Gristede's
              Operating  Corp.  Incorporated by reference to Exhibit 10.8 to the
              Transition  Period 10-K.   All exhibits and schedules to the Asset
              Purchase Agreement are omitted,  but the Registrant  undertakes to
              provide  copies  of  any or all  of  the  foregoing  exhibits  and
              schedules  to the  Securities  and  Exchange  Commission  upon its
              request.

10.9          First  Amendment and Waiver to Loan Agreement dated April 30, 1998
              between the Company,  IDBNY, Keybank and Bank Leumi.  Incorporated
              by reference to Exhibit 10.9 to the Transition Period 10-K.

10.10         1998 Stock Option Plan. Incorporated by reference to Exhibit 10.10
              to the Transition Period 10-K.

10.11         Agreement  dated February 27, 1999 between John  Catsimatidis  and
              the Company.*

10.12         Second  Amendment  to Loan  Agreement  dated as of August 29, 1998
              between the Company,  European American Bank, Israel Discount Bank
              of New York, Keybank and Bank Leumi.*

10.13         Third  Amendment to Loan  Agreement  dated as of November 28, 1998
              between the Company,  European American Bank, Israel Discount Bank
              of New York, Keybank Bank and Bank Leumi.*

11.           Statement re computation of per share income (loss). Not required.

21.           Listing  of the  Company's  subsidiaries  all of which are  wholly
              owned by the Company.

                  Subsidiaries                            State of Incorporation
                  ------------                            ----------------------
                  Namdor Inc.                             New York
                  SAC Operating Corp.                     New York
                  Gristede's Operating Corp.              New York
                  City Produce Operating Corp.            New York
                  RAS Operating Corp.                     New York

              The Registrant has one other wholly-owned subsidiary,  the name of
              which is omitted herein because as of February 25, 1999 it did not
              constitute a significant subsidiary.

23.           Consent  of  BDO  Seidman,   LLP  Independent   Certified   Public
              Accountants.*

27.           Financial Data Schedule.

----------------------
*        Filed herewith.


                                       26