--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                 ---------------
                                   Form 10-KSB
                                   (Mark One)
  [ X ] Annual report pursuant to Section 13 or 15(d) of the Securities 
                              Exchange Act of 1934
                   For the fiscal year ended December 31, 1997
                                       or
  [  ]  Transition  report  pursuant  to  Section  13 or  15(d)  of the
        Securities Exchange Act of 1934 For the transition period from _____ to
         _____

                         Commission file number 0-22431

                              MIKE'S ORIGINAL, INC.
                 (Name of Small Business Issuer in its Charter)

                  Delaware                              11-3214529
         (State or other jurisdiction of       (IRS Employer Identification No.)
          incorporation or organization)

         350 Theodore Fremd Avenue, Rye, New York            10580
         (Address of Principal Executive Offices)          (Zip Code)

         Issuer's telephone number, including area code:   (914) 925-3485

        Check whether the issuer (1) filed all reports required to be filed by 
        Section 13 or 15 of the  Exchange  Act during  the past 12 months  (or
        for such  shorter period that the registrant was required to file such 
        reports),  and (2) has been subject to such filing requirements for the 
        past 90 days.     Yes [ x ]   No [   ]

        Check if there is no disclosure of delinquent  filers  pursuant to Item 
        405 of Regulation S-B contained in this form, and no disclosure  will 
        be contained,  to the  best  of  registrant's   knowledge,  in  
        definitive  proxy  or  information statements  incorporated  by  
        reference  in Part III of this Form  10-KSB or any amendment to this 
        Form 10-KSB [x]

        Issuer's revenue for its most recent fiscal year:  $384,348

        The aggregate market value of the voting stock held by  non-affiliates  
        of the registrant  as of  March 31, 1998 based on the  average  price 
        on that date was $6,871,511.  At March 31, 1998, the number of shares 
        outstanding of the issuer's common stock was 3,265,429.

                       DOCUMENTS INCORPORATED BY REFERENCE
          None
          Transitional Small Business Disclosure Format   Yes [  ]   No [ x ]


<PAGE>


                                     PART I

ITEM 1.     DESCRIPTION OF BUSINESS

General

     The Company markets,  sells and distributes Mike's Original  Cheesecake Ice
Cream,  an  innovative  all  natural  blend  of  super-premium  ice  cream  with
cheesecake  ingredients.  This  product  line is offered in a variety of flavors
mainly to  supermarkets  and grocery  stores and also,  to a lesser  extent,  to
convenience  stores  and  food  service  outlets.  The  Company's  products  are
presently sold in approximately five (5) states, including New York, California,
Pennsylvania and New Jersey, with sales concentrated on the east and west coasts
of the United States.

     In October 1995,  the Company  entered into an agreement  with Kraft Foods,
Inc.  for  the  exclusive   distribution  of  the  Company's  products  for  the
northeastern and western regions of the United States.  In September 1997, Kraft
Foods,  Inc.   terminated  this  agreement,   which  ended  their   distribution
responsibilities  by mid-November 1997. Since that time, the Company has entered
into a new  distribution  agreement  with Mattus Ice Cream on the east coast and
West Pico  Foods on the west  coast.  Mattus Ice Cream is the  manufacturer  and
distributor of premium low fat ice cream as well as other frozen products.  West
Pico  Foods is a major  independent  distributor  of ice  cream as well as other
frozen food products on the west coast of the United States.

     Management's  plan is to change the  emphasis of the  Company's  operations
from marketing and  distributing  super-premium  ice cream products to marketing
and  distributing  frozen  desserts  that  will  include  a  line  or  lines  of
super-premium  ice cream  products to include the Company's  products as well as
other  lines  of  super  premium  ice  cream  products.  Management  intends  to
accomplish   this  plan  through  the  strategic   acquisition  of  distribution
companies,  concentrated  in large  metropolitan  areas,  which will provide new
brands and customers,  distribution  expertise and an operations center that can
absorb  future  acquisitions.   The  Company  is  engaged  in  discussions  with
nationally known companies to obtain licenses to market and distribute  products
bearing the name of the licensor.  These acquisitions and distribution  licenses
are intended to be financed  from an additional  offering of securities  planned
for 1998,  though there are no assurances that such offering can be successfully
consummated. See "Description of Business - Recent Developments" and Notes 2, 13
and 14 of Notes to Financial Statements.

     The Company was  incorporated in New York in March 1993 and  reincorporated
in Delaware in May 1994.  It  maintains  its  principal  offices at 350 Theodore
Fremd Avenue,  Suite 300, Rye, New York 10580 and its telephone  number is (914)
925-3485.

<PAGE>



Present and Future Products

     According to the International Ice Cream Association, ice cream was part of
a $10.5 billion  nationwide frozen dessert industry in 1995 and has wide appeal,
with over 93% of  households  in the United  States  consuming  these  products.
Super-premium  ice cream is generally  characterized  by a greater  richness and
density than other kinds of ice cream with a butter fat content of at least 14%.
This  category  of ice cream was  created  in 1959 by Ruben  Mattus,  founder of
Haagen-Dazs, and expanded by Ben & Jerry's.

     The Company  competes in the packaged ice cream category with three flavors
of pints.  The three flavors of cheesecake ice cream offered in pints are Graham
Cracker  Delight , Strawberry  Fantasy and Chocolate  Tidbits . The Company also
competes  in the  novelty  category  of  premium  ice  cream  bars and ice cream
sandwiches. Its premium ice cream bar products are all cheesecake ice cream with
either a graham cracker crunch coating or strawberry sorbet coating,  using high
quality  California  strawberries.  The  Company's  other  product is a sandwich
version  trademarked  GRAMWICH , which is cheesecake ice cream surrounded by two
specially made graham cracker wafers.

     In this regard, the Company also manufactures a line of pint products under
the tradename  "Sorbet  Blends." The "Sorbet  Blends"  consist of a nearly equal
mixture of sorbet and cheesecake ice cream in two flavors,  "Raspberry  Romance"
and "Lemon Lace".  These products have  approximately  half the calories and fat
content of the Company's other pint varieties.

Manufacturing Agreement

     The Company's  products are presently  manufactured by Fieldbrook Farms, an
independent FDA approved facility located in Buffalo, New York, under a two-year
exclusive  manufacturing  agreement  expiring in March 1999.  The  manufacturing
agreement,  dated as of March 20, 1997,  provides that  Fieldbrook  shall be the
exclusive supplier of all products manufactured by Fieldbrook and distributed by
the  Company  east of the  Mississippi  River  for a  period  of two  years.  If
Fieldbrook  were to suspend the  manufacturing  of the Company's  products,  the
Company's operating markets may be adversely affected.

Distribution and Marketing

     The Company,  through its officers,  consultants and other representatives,
currently markets the Company's  products to supermarkets and grocery stores and
also, to a lesser extent,  to convenience  stores and food service outlets.  The
Company has  incurred  substantial  promotional  expenses  for freezer  space in
connection with entering new markets, maintaining existing markets, entering new
retailers  and  maintaining  shelf  space in  existing  retailers.  The  Company
receives no assurance  that these  retailers  will continue to allocate  freezer
space for the  Company's  products  even after the payment of these fees and, in
fact,  certain  supermarkets have discontinued  selling the Company's  products.
Once  the  Company  obtains  authorization  from  retailers  and  satisfies  the
substantial  initial  promotional   expenses,   the  Company  then  directs  its
distributors to distribute the Company's products to the appropriate  authorized
retailers.

     The Company has entered into agreements  with  distributors on the east and
west  coasts  of the  United  states.  Mattus  Ice  Cream,  a  manufacturer  and
distributor of premium low fat ice cream and other frozen  desserts  distributes
Mike's  original  products to authorized  accounts on the east coast.  West Pico
Foods, a major independent  distributor of ice cream and related frozen products
is the distributor for the authorized accounts on the west coast.

<PAGE>

     The Company promotes its products  through trade and consumer  advertising,
trade show participation,  in-store demonstrations,  circular advertisements and
special event  sampling/couponing.  Print  advertising and shelf price discounts
are the primary  vehicles used by the Company with its initial approach being to
target regional areas of distribution.

Competition

     The  super-premium  ice cream market is highly  competitive and the Company
faces substantial  competition in connection with the marketing and sales of its
products.  Among its competitors are Haagen-Dazs owned by The Pillsbury Company,
Ben & Jerry's and numerous  other  regional ice cream  companies.  Many of these
competitors are well established and have  substantially  greater  financial and
other  resources than the Company.  Additionally,  Haagen-Dazs and Ben & Jerry's
manufacture  their own ice cream. In the ice cream novelty segment,  the Company
competes with several  well-known  brands including  Haagen-Dazs and Dove Bars ,
manufactured by a division of Mars, Inc.

     Achieving wide  distribution  in the ice cream business is difficult due to
the substantial  expense of a national  marketing program and the limitations on
available space in the freezer compartments of retailers. The Company's products
also may be  considered  in  competition  with all ice cream  and  other  frozen
desserts for discretionary food dollars.

     The ability of the Company to increase  its market  share will be dependent
upon several factors,  among which are consumer acceptance of the products,  the
quality  and  price  of  its  products,  advertising  and  the  availability  of
sufficient capital for product expansion.

Government Regulation

     The  Company is  subject to  regulation  by various  governmental  agencies
regarding  the  distribution  and sale of food  products,  including the FDA and
various state agencies. The Company believes that its marketing and distributing
operations comply with all existing applicable laws and regulations.


<PAGE>


     The  Company  cannot  predict the impact of  possible  changes  that may be
required in response to future legislation, rules or inquiries made from time to
time by governmental  agencies.  FDA regulations may, in certain  circumstances,
affect the ability of the Company, as well as others in the industry, to develop
and market new products.  However,  the Company does not presently  believe that
existing  applicable  legislative and administrative  rules and regulations will
have a significant impact on its operations.

Trademarks and Patents

     The Company owns  registered  trademarks  and service marks under the names
"Mike's  Original ", "GRAMWICH " and "Graham  Cracker Delight ". The Company has
common law trademarks for "Strawberry  Fantasy ",  "Chocolate  Tidbits ", Sorbet
Blends  ,  Raspberry  Romance  and  Lemon  Lace . It also  has  filed  a  patent
application on its formulated process to manufacture cheesecake ice cream.

Insurance

     The Company's business exposes it to potential  liability which is inherent
in the  marketing  and  distribution  of food  products.  The Company  currently
maintains $2,000,000 of product liability insurance.  The Company also maintains
$1,000,000  of  general  and  personal  injury   insurance  per  occurrence  and
$5,000,000  in the  aggregate.  If any  product  liability  claim  is  made  and
sustained  against the Company and is not covered by  insurance,  the  Company's
business and prospects could be materially adversely affected.

Employees

     The Company employs four persons,  all of whom are located in the Company's
Rye, New York headquarters and serve in selling and  administrative  capacities.
None of the Company's  employees are  represented by a labor union.  The Company
considers its relationships with its employees to be satisfactory.

Seasonality

     The ice cream industry generally  experiences its highest volume during the
spring and summer  months and the lowest  volume in the winter  months.  In this
regard,  according  to  statistics  published  by the  International  Ice  Cream
Association,  35.5% of sales of novelty ice cream products and 29.5% of sales of
packaged  ice  cream  products  were  made  during  the  third  quarter  (July -
September)  of  calendar  1996 while  only  18.0% of sales of novelty  ice cream
products  and 22.4% of sales of  packaged  ice cream were made  during the first
quarter (January - March) of calendar 1996.

Recent Developments

     1. On December 18, 1997,  the Company  entered into  agreements  to acquire
companies engaged in the full service  distribution of ice cream in the New York
Metropolitan area through its wholly-owned  subsidiary New York Frozen Desserts,
Inc. In exchange for all the assets of New Yorker Ice Cream  Corp.,  the Company
will pay $465,000 at closing,  $800,000 over three years with interest at 8% and
assume certain obligations.  In exchange for all the assets of Jerry's Ice Cream
Co.,  Inc.,  the Company will pay $245,000 at closing,  and $220,000  over three
years with  interest at 8%. The Company  intends to finance  these  acquisitions
from an additional  offering of securities planned for 1998, though there are no
assurances that such offering can be successfully consummated.

  New Yorker Ice Cream Co.

     New  Yorker  Ice Cream Co.  ("New  Yorker")  is a family  run  distribution
business  specializing  in the ice cream  category.  The company is owned by Ted
Ketsoglou,   a  third  generation  family  member.   Originally   founded  as  a
manufacturer of ice cream  products,  New Yorker has evolved into a full service
distributor  concentrating  in the metro New York City area handling  retail and
foodservice  accounts.  These  locations  include  retail  stores,  restaurants,
deli's, institutional sales, supermarkets, vending, parks and beaches as well as
airports and travel facilities.

     New Yorker  operates  truck  routes in its  distribution  area and services
these  accounts  on a regular  basis up to several  times per week per  account.
These routes are secured via New Yorker's own ice cream cabinet  program whereby
each  account is supplied  with a late model  freezer  dedicated to New Yorker's
carefully planned ice cream product  selection.  New Yorker Ice Cream highlights
major regional and national  brands such as Haagen-Dazs,  Baskin  Robbins,  Good
Humor, Marino Italian Ices, Friendly's,  as well as other major brands including
New Yorker's own private label products.

<PAGE>

     New Yorker staffs its own in-house  refrigeration and service department to
insure the Company and its customers a high degree of  satisfaction  and support
in the maintenance and repair of equipment. In addition, New Yorker has a highly
trained and dedicated staff of sales executives who have extensive knowledge and
experience  in the frozen  dessert  and ice cream  category.  The  Company  also
employs a quality control program that guarantees the freshest  possible product
properly handled at all times. This includes  inventory controls whereby product
is brought in on a regular basis to the warehouse and rotated for freshness.

  Jerry's Ice Cream Co.

     Jerry's Ice Cream Co. ("Jerry's") is owned and operated by Jerry Schneider,
and  services  accounts in the metro New York and  Westchester  region.  Jerry's
trucks  supply ice cream  products to its accounts on a regular  basis.  Jerry's
also supplies freezer cabinets to accounts that are personally secured by Jerry.
The accounts are then  provided  with leading  brand names such as  Haagen-Dazs,
Friendly's,  Baskin  Robbins,  Good Humor and  others.  Jerry takes a "hands on"
approach to the business, visiting his current accounts on a weekly basis.

     Jerry's  utilizes the maintenance  and repair  facilities of New Yorker Ice
Cream to keep his accounts and their  equipment in proper  operating  condition.
Jerry's Ice Cream supplies these freezers and products to both retail businesses
as well as various food service accounts.

     2. On March 4, 1998,  the  Company,  through its  wholly-owned  subsidiary,
signed a license  agreement to sell and  distribute  frozen juice bars under the
name of a nationally known licensor.  This agreement is for a limited  territory
in the Eastern  part of the  country for a period of two years.  The Company has
the option to obtaining two  sublicensees to operate under the main agreement on
its behalf.

<PAGE>

ITEM 2.     DESCRIPTION OF PROPERTY

     On February 15, 1998,  the Company  signed a lease for a three-month  term,
renewable monthly,  for office space in Rye, New York. This office will serve as
the  corporate  office of the  Company  until such time as the  Company  and the
planned acquisitions can be relocated to an appropriate  facility.  The lease in
Jericho, New York expired without any additional costs.

ITEM 3.     LEGAL PROCEEDINGS

Darigold, Inc. v. Mike's Original, Inc.  Index No.  97-023870
-------------------------------------------------------------
     On August 19,  1997,  Dairgold  commenced  an action  against  the  Company
seeking damages in the amount of $27,683.40,  plus accrued  interest and counsel
fees arising from the  Company's  purported  breach of the terms of a promissory
note delivered by the Company to Darigold, Inc. In addition, the complaint seeks
damages in the amount of $59,379.00,  arising from the Company's alleged failure
to accept return of certain  inventory that was in Darigold's stock. The Company
has filed an answer denying the  allegations  of the  complaint.  On January 12,
1998,  Darigold filed a motion for partial summary  judgment with respect to the
Company's purported breach of the promissory note.

     On April 1, 1998,  the Company  entered into a partial  settlement  of this
action with Darigold.  In accordance  with the terms of the partial  settlement,
the Company agreed to pay Darigold $10,000 immediately,  and monthly payments of
$4,125.45  through  September 1, 1998.  In return,  Darigold has  withdrawn  its
motion for partial  summary  judgment  with respect to the  Company's  purported
breach of the promissory note and has dismissed,  with  prejudice,  the cause of
action in the complaint relating to the promissory note.

Kelley-Clarke, Inc. v. Mike's Original, Inc. Index No. 97-034292
----------------------------------------------------------------

     On December 11, 1997, Kelley-Clarke commenced an action against the Company
seeking  damages  in the  amount of  $25,996.00  arising  from  certain  alleged
commissions  that  Kelley-Clarke  claims  are due to it from  the  Company.  The
Company has filed an answer asserting affirmative defenses and intends to defend
this action vigorously.

J.W. Messner, Inc. v. Mike's Original, Inc., Index No. 96 Civ. 4716
-------------------------------------------------------------------

     On May 22, 1997,  the parties  entered into a  Stipulation  of  Settlement,
wherein the Company agreed to pay J. W. Messner the sum of $125,935.82, in three
installments  as follows:  $40,000 on June 30,  1997;  $42,967.91,  plus accrued
interest, on or before June 30, 1998; and $42,967.91,  plus accrued interest, on
or before December 31, 1998.


<PAGE>


Universal Folding Box Co., Inc. v. Mike Original, Inc., et al
--------------------------------------------------------------

     On April 2, 1998, the Company was served with a summons and complaint in an
action known as Universal Folding Box Co., Inc. v Mike's Original,  Inc., et al.
This  action is pending in the  Superior  Court of New  Jersey,  Hudson  County,
Docket  No.  HUD-L-1585-98.  The  complaint  seeks  damages  in  the  amount  of
$82,036.67,  arising  from the sale of various  supplies  and services for which
plaintiff  claims it was not paid. The Company intends to file an answer in this
action denying the allegations of the complaint.


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

     Not applicable.

<PAGE>


                                     PART II

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
            MATTERS

     The Company's  Common Stock and Warrants were listed and commenced  trading
on the OTC Bulletin Board under the symbols MIKS and MIKSW on July 31, 1997. The
following table sets forth, for the quarters  indicated,  the quarterly high and
low closing bid prices for the Common  Stock and Warrants as reported by the OTC
Bulletin Board.

<TABLE>
<CAPTION>

                                               Common Stock                      Warrants
                                            High Bid       Low Bid        High Bid      Low Bid
                                            --------       -------        --------      -------
<S>                                          <C>         <C>            <C>             <C>

1997
     Third Quarter . . . . . . . . . .           10            5              5          1.375
     Fourth Quarter. . . . . . . . . .        5.125       2.5625          2.125              1

1998
     First Quarter . . . . . . . . . .        4.375        2.125          1.375            .50
     Second Quarter (through April 7, 1998)    2.50            2           .875           .875

</TABLE>

     The bid prices set forth above reflect inter-dealer prices,  without retail
mark-up, mark-down, or commission, and may not represent actual transactions. As
of March 31, 1998,  there were  approximately  200 stockholders of record of the
Common Stock.

     The Company  has not paid any  dividends  on its Common  Stock and does not
presently  intend to do so.  Future  dividend  policy will be  determined by its
Board of Directors on the basis of the Company's earnings, capital requirements,
financial condition and other factors deemed relevant.

     The transfer agent and registrar of the Company's  Common Stock is American
Stock Transfer and Trust Co., 40 Wall Street, New York, New York 10005.


<PAGE>


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

Results of Operations

Years Ended December 31, 1997 and December 31, 1996

     The Company's net sales for the years ended December 31, 1997 and 1996 were
$384,348 and $2,392,259, respectively, a decrease of 84%. This decrease resulted
from the initial fill of product into the  distributor  pipeline  which occurred
early in 1996, as well as the Company's  limited capital in 1997,  which limited
capital  has  adversely  impacted  its  ability  to  purchase  product  from its
manufacturer  to fill  existing  customer  orders and has limited its ability to
engage in marketing and advertising  programs to promote  additional  sales. Net
sales for 1997 were also  adversely  affected by the  determination  by Kraft to
terminate its distributorship agreement with the Company. Net sales for 1997 was
further reduced by  approximately  $129,000,  representing net returns from this
distributor.

     Gross profit (loss) for the years ended December 31, 1997 and 1996 declined
107% and 5%,  respectively,  ($66,850)  and  $952,624,  taking into  account the
return of product  previously  described.  Gross profit as a percentage of sales
(before the effect of the sales  returns)  for the year ended  December 31, 1997
declined to a deficit of 17.4% of net sales compared to 39.8% for the year ended
December  31,  1996.   The  decrease  in  gross  profit   dollars  is  primarily
attributable  to the  decline in net sales and gross  profit  percentage.  Gross
profit as a percentage  of net sales  declined  partly as a result of higher raw
material  costs  associated  with the  manufacture  of the  Company's  ice cream
products,  reduced selling prices to certain area retailers and the very limited
volume.

     General and administrative  expenses (G&A) for the years ended December 31,
1997  and  December  31,  1996  were  approximately  $2,178,000  and  $2,194,000
respectively.  The  major  components  of these  expenses  for the  years  ended
December  31,  1997 and  December  31, 1996 were  payroll  and related  taxes of
$399,000 and $361,000,  respectively,  legal and accounting fees of $597,000 and
$413,000,  respectively  (of  which  $450,000  was paid in Common  Stock  during
calendar year 1997) and consulting fees of $948,000 and $1,178,000, respectively
(of which $855,000 and $180,000,  respectively  was paid in Common  Stock).  The
shares  issued  during the year  ended  December  31,  1997,  though  restricted
securities,  were valued by the Company at $1,311,000,  based upon 25% discounts
from the initial public offering  ("IPO") price on transactions  occurring prior
to the IPO and the closing  bid price on the date  authorized  for  transactions
occurring after the IPO.

     Selling and  shipping  expenses  for the years ended  December 31, 1997 and
December 31, 1996 were approximately $724,000 and $2,596,000  respectively.  The
decline for the 1997 period was primarily from decreases in retail  introductory
programs from $602,000 to $131,000 and store and media price  reduction  coupons
and media events from $983,000 to $314,000,  as well as decreases in advertising
programs with store chains from $305,000 to $64,000.

     Research  and  development  costs for the year ended  December 31, 1997 was
$28,594 as  compared  to $70,632  for the year ended  December  31,  1996.  This
decrease of $42,038 or 60% is a direct result of the limited  capital  available
for such expenditures.


<PAGE>


     Interest  expense,  net of interest income for the years ended December 31,
1997 and December 31, 1996 were $1,506,000 and $142,,000 respectively.  $169,000
of the net interest cost for the year ended  December 31, 1997 was  attributable
to the conversion of open accounts payable into interest-bearing  accounts,  and
additional borrowings from related parties and other creditors.  These additions
to  interest-bearing  obligations  began in mid 1996 and continued in 1997 until
completion of the Company's IPO. The remainder of interest charges for the years
December 31, 1997 and 1996 resulted from non-cash  imputed  interest  charges of
$1,327,000 and $34,000, respectively,  primarily in connection with the issuance
of Common Stock to the Company's  manufacturer,  and the issuance of convertible
debt and/or warrants to lenders, including vendors. The imputed interest charges
attributable  to the shares  issued and issuable to these  various  creditors in
1997 were  charged  to  operations  in the  period  the  shares  or  convertible
securities were initially issued. The shares, though restricted securities, were
valued by the Company based upon a 25% discount from the IPO price.

     Net loss for the years  December 31, 1997 and 1996  amounted to  $4,503,000
and  $4,051,000,  respectively.  The primary reason for the net loss in 1997 was
the lack of sales volume,  the lack of cash flow through the date of the IPO and
the high interest costs  associated  with the high debt levels prior to the IPO.
The  1996  net  loss  was   attributable  to  the  high  selling,   general  and
administrative expenses combined with lower gross profits.

Liquidity and Capital Resources

     The  Company's  cash  requirements  have been  significantly  exceeding its
resources due to the  substantial  promotional  expenses  incurred in connection
with the entry by the Company into new markets and expansion  into new locations
in existing  markets,  which to date have not  resulted in sales  sufficient  to
offset  these  expenditures.  As a result  of the  Company's  limited  operating
resources,  the Company also has been unable to participate in certain  programs
which may have  increased  sales.  In August  1997,  the  Company  received  net
proceeds of  $3,342,000  from its IPO. This offering was an integral part of the
Company's plans to meet its cash  requirements.  The Company believes that based
upon its current plans, its resources,  including the proceeds of this offering,
will be  sufficient  to meet its cash  requirements  through June 30, 1998.  The
Company also believes that certain  long-term  indebtedness  due on December 31,
1997 and December  31, 1998  (approximately  $206,000 and $362,000  respectively
plus accrued interest thereon) will be payable from internally  generated funds,
if any,  or debt  financing  or from  the  sale  of  additional  debt or  equity
securities.  The amounts due on December  31, 1997 were not paid and the Company
is currently  negotiating new terms and due dates for this debt.  Other than its
IPO, the Company has no commitments or arrangements for any future financing and
there can be no assurance  that future  financing  can  otherwise be obtained on
satisfactory terms, if at all.

     The Company has  historically  raised  capital  through the private  equity
markets,  and through debt financing and short-term  loans, and will continue to
pursue these  opportunities,  if  necessary.  Prior  transactions  have involved
officers,  directors,  stockholders and affiliates of the Company, as may future
transactions.

     Based  upon the above  circumstances,  the  Company  has  received  a going
concern  opinion  for the year  ended  December  31,  1997 from its  independent
auditors.  Management's  plan  is  to  change  the  emphasis  of  the  Company's
operations from marketing and distributing  super-premium  ice cream products to
marketing and distributing  frozen desserts that will include a line or lines of
super-premium  ice cream  products.  Management  intends to accomplish this plan
through the strategic  acquisition of  distribution  companies,  concentrated in
large  metropolitan   areas,  which  will  provide  new  brands  and  customers,

<PAGE>

distribution   expertise  and  an  operations  center  that  can  absorb  future
acquisitions.  The  Company is  engaged in  discussions  with  nationally  known
companies to obtain  licenses to market and distribute  product bearing the name
of the licensor.  These acquisitions and distribution licenses would be financed
from an additional  offering of securities planned for 1998, though there are no
assurances that such offering can be successfully  consummated.  See Notes 2, 13
and 14 of Notes to Financial Statements.

     Except for  historical  information  contained in this Report,  the matters
discussed are  forward-looking  statements that involve risks and uncertainties.
Among the factors that could cause actual  results to differ  materially are the
following:  the  effect of  business  and  economic  conditions;  the  impact of
competitive   products  and  pricing;   capacity  and  supply   constraints   or
difficulties;   product   development,    commercialization   or   technological
difficulties; and the regulatory and trade environment.



<PAGE>


ITEM 7.   FINANCIAL STATEMENTS

     The  following  selected  financial  data has been derived from the audited
financial  statements of the Company and should be read in conjunction with, the
financial statements and related notes appearing elsewhere in this Form 10-KSB.

Statement of Operations Data:

<TABLE>
<CAPTION>
                                             Fiscal Year Ended December 31,

                                     Nine Months
                                        ended
                                      December 31,
                                         1995             1996                1997
                                      ------------        ----                ----

 <S>                                  <C>               <C>                <C>     
  Net sales. . . . . . . . . . . . .  $2,312,144        $2,392,258           $384,348
  Net loss from operations . . . . .  (1,614,858)       (4,050,547)        (4,502,645)
  Basic loss per common share. . . .      $(1.23)           $(2.54)            $(1.69)
  Weighted average number of
     shares outstanding. . . . . . .   1,311,398         1,592,106          2,662,013

</TABLE>


<TABLE>
<CAPTION>
Balance Sheet Data:
                                                    December 31, 1997
                                                    -----------------

  <S>                                                 <C>         
  Working capital (deficit). . . . . . . . . . .      ($1,062,651)
  Total assets . . . . . . . . . . . . . . . . .          623,674
  Stockholders' equity (deficit) . . . . . . . .       (1,051,056)

</TABLE>

The financial statements listed in Item 7 are included in this Report beginning
on page F-1.

<PAGE>


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

     (a) Information previously reported in Report on Form 8-K dated January 15,
1998.


<PAGE>


                                    PART III

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

     The Company's directors and executive officers as of March 31, 1998 were as
follows:

        Name              Age    Position(s) with the Company
        ----              ---    ---------------------------- 

     Michael Rosen        39     Chairman of the Board, Chief
                                 Executive Officer, President and Director

     Michael Mitchell     57     Vice-President -Marketing and Sales

     Frederic D. Heller   60     Director

     Rachelle Rosen       38     Secretary and Treasurer

     Martin Pilossoph     67     Director

     Arthur G. Rosenberg  60     Director

     Myron Levy           56     Director


     Michael  Rosen has been the Chief  Executive  Officer of the  Company and a
director since its inception in March 1993 and President  since  September 1996.
For six years prior to the formation of the Company, Mr. Rosen was President and
sole  shareholder  of Progressive  Personnel,  Inc., a career search firm in New
York City. Mr. Rosen graduated from the State University of New York,  Brockport
with a Bachelor of Science  degree in Business  and Sports  Administration.  Mr.
Rosen is the husband of Rachelle Rosen and the son-in-law of Martin Pilossoph.

     Michael Mitchell has been Vice  President-Marketing  and Sales since August
1997. From 1989 to August 1997, Mr. Mitchell was an independent consultant under
the name Mitchell Associates. From 1986 to 1989, Mr. Mitchell was Vice President
of  Dunkirk  Ice Cream in  Dunkirk,  New York.  From 1980 to 1985,  he served in
various  capacities  for Atlantic  Processing,  including  Sales and  Operations
Manager of their ice cream  division.  From 1979 to 1980, Mr.  Mitchell was Vice
President-Sales  and Marketing for  Schraffts Ice Cream.  Mr.  Mitchell has over
thirty  years  experience  in the ice  cream  industry  and has  specialized  in
successfully developing troublesome operations.

     Frederic  D.  Heller was Vice  President  of Finance  and  director  of the
Company from January 1997 until November 14, 1997 when he resigned as an officer
of the Company. Since November 1997, Mr. Heller has been Chief Financial Officer
of J & W Management  Corp., a commercial  real estate  management  company.  Mr.
Heller is a CPA  licensed  in the State of New York for over the last ten years.
Prior to joining the Company,  from  November  1994  through  January  1997,  he
practiced  as an  independent  financial  consultant  including  rendering  such
services to the Company in that capacity from August 1996 to January 1997.  From
September  1992 through  October 1994,  Mr. Heller was Vice President of Finance
and director of Vasomedical,  Inc.,  formerly Future Medical  Products,  Inc., a
publicly  owned  business  involved  in the  merchandising  of  certain  medical
technology.  From October 1990 through  September 1992, Mr. Heller was president
and chief  operating  officer  of FDH  Enterprises,  Inc.,  a company  rendering
financial consulting services to business clients.

<PAGE>

     Martin  Pilossoph has been a director of the Company since  September 1995.
For the past five years,  Mr. Pilossoph has been a Senior Sales Executive of the
Ingram Companies,  a national video  wholesaler.  Mr. Pilossoph is the father of
Rachelle Rosen and the father-in-law of Michael Rosen.

     Arthur G.  Rosenberg  has been a director  of the Company  since  September
1995.  Mr.  Rosenberg has been a practicing  attorney for more than the past ten
years.  Since June 1, 1987, he has been Vice  President of  Acquisitions  of The
Associated  Companies,  a residential land and commercial  developer  located in
Bethesda, Maryland.

     Myron Levy has been a director of the Company  since July 1997.  Since June
1993, Mr. Levy has been President of Herley  Industries,  Inc., a publicly owned
designer and manufacturer of flight instrumentation  products.  From May 1991 to
June 1993,  Mr. Levy served as Executive  Vice President and Treasurer of Herley
Industries, Inc. Mr. Levy also has been a director of Herley since 1992.

     Rachelle  Rosen has been  Secretary  and Treasurer of the Company since its
formation in 1993. Ms. Rosen served as a director of the Company from 1993 until
January 1997. It was Ms.  Rosen's  cheesecake  that gave her husband,  Mike, the
idea and  concept  for Mike's  Original  Cheesecake  Ice Cream.  She  received a
Bachelor of Science  degree from Queens  College.  Ms.  Rosen is the daughter of
Martin Pilossoph and the wife of Michael Rosen.

     The Company's  Board of Directors is  classified  into three  classes.  The
directors in each class serve for three-year terms. Arthur Rosenberg is a member
of Class I which serves until the Company's 1997 Annual Meeting of Stockholders.
Martin  Pilossoph is a member of Class II which serves until the Company's  1998
Annual  Meeting of  Stockholders  and Myron Levy has been  elected to serve as a
member of Class II which  serves  until the  Company's  1998  Annual  Meeting of
Stockholders.  Michael  Rosen and  Frederic  D.  Heller are members of Class III
which serves until the Company's 1999 Annual Meeting of Stockholders.  Directors
who are not employees of the Company, of which there are presently two, and upon
consummation of this offering will be three,  receive no cash  compensation  for
their  services to the Company as  directors,  but are  reimbursed  for expenses
actually  incurred  in  connection  with  attending  meetings  of the  Board  of
Directors.  All members of the Board of Directors are eligible to participate in
the Company's stock option plans.  Each director  attended or participated in at
least 75% of the meetings of the Board of Directors  during his or her tenure in
fiscal 1997.

<PAGE>


ITEM 10. EXECUTIVE COMPENSATION

     The following  table  sets forth the cash and other  compensation  paid or
accrued by the Company  during the year ended December 31, 1997 and 1996 and the
nine months ended December 31, 1995 to the Company's Chief Executive Officer. No
other executive officer earned over $100,000 in any fiscal year.

<TABLE>
<CAPTION>
                                                                           Long Term
                                       Annual Compensation                Compensation                            
                              ------------------------------------------  ------------         
                                                                           Securities
     Name and                                              Other  Annual    Underlying         All Other
Principal Position            Year   Salary      Bonus     Compensation(2)   Options          Compensation
-------------------           ----   ------      -----     --------------- ------------       ------------

<S>                           <C>     <C>                                    <C>                   
Michael Rosen                 1997    $98,083      -              -          50,000(3)            -
 Chairman of the Board,       1996    112,250(1)   -              -         200,000(3)            -
 President, Chief          9/30/95(4)  81,000(1)   -              -              -                -
 Executive Officer

___________
<FN>

(1)   Does not include an  aggregate  of $89,565 of salary which was accrued and
      not paid to Mr. Rosen during the period from inception  through  September
      30, 1996, to which Mr. Rosen has waived all rights.
(2)   The value of all perquisites provided to the Company's officers did not exceed the lesser of $50,000 or
      10% of the officer's salary and bonus.
(3)   Represents ten-year options granted in May 1996 and September 1996 pursuant to the Company's 1995
      Long Term Incentive Plan.
(4)   Represents the nine month period ended December 31,1995.
</FN>
</TABLE>



<PAGE>

Option/SAR Grants in Last Fiscal Year

     The following  table sets forth all stock options  granted to the executive
officers named in the Executive  Compensation table during the fiscal year ended
December 31, 1997 and 1996.

<TABLE>
<CAPTION>
                                       Individual Grants
                   -------------------------------------------------------------
                   Number of      % of Total
                   Securities     Options/SARS
                   Underlying     Granted to
                   Options/SARS   Employees in    Exercise or Base    Expiration
Name               Granted (#)    Fiscal Year       Price ($/Sh)          Date
----               ------------   -------------   -----------------   ----------

<S>                   <C>             <C>              <C>             <C> 
Michael Rosen         33,333          12.5%            $3.00           May 31, 2006   (1)
                     166,667          62.5%            $1.50           September 11, 2006 (2)
                      50,000          42.9%            $1.50           May 1, 2007(3)
------
<FN>
(1)  Represents ten year options granted in May 1996, pursuant to the Company's 1995 Long Term Incentive
     Plan.  Options became fully vested on November 30, 1996.
(2)  Represents ten year options granted in September 1996, pursuant to the Company's 1995 Long Term
     Incentive  Plan.  Options beneficial vested on March 12, 1997.
(3)  Represents ten year options granted in May 1997 pursuant to the Company's 1995 Long Term Incentive
     Plan.  Options vested on November 1, 1997.
</FN>
</TABLE>


Employment Agreements

     Michael Rosen

     The Company has entered into an  employment  agreement  with Michael  Rosen
pursuant  to which Mr.  Rosen has agreed to serve as  Chairman  of the Board and
Chief Executive Officer of the Company, at an annual base salary of $100,000 for
the first year of the  agreement  and an annual base salary of $125,000 for each
of the remaining  five years of the  agreement.  Mr. Rosen is also entitled to a
$50,000  bonus for each of the third through sixth years of the Agreement in the
event the Company's pretax income for such year exceeds $1,000,000.  Mr. Rosen's
employment  agreement is for six years,  which  commenced  on June 1, 1995.  The
employment  agreement  provides  that Mr.  Rosen  may be  terminated  only for a
material  breach  of the  terms of the  agreement  which is not  cured  after he
receives five (5) days written notice.

     Mr. Rosen's employment agreement restricts him from engaging in competition
with the Company for the term thereof and  contains  provisions  protecting  the
Company's  proprietary  rights and  information,  including  the use of the name
"Mike's  Original ". The agreement also provides for the payment to Mr. Rosen of
three  times his  previous  year's  total  compensation,  less  $1.00,  upon the
termination  of his  employment  in the  event of a  change  in  control  of the
Company.  For those purposes,  a change in control is defined to mean (a) change
in control as such term is defined on  Regulation  240.12b-2  of the  Securities
Exchange  Act of 1934,  as amended  or (b) if during the term of the  agreement,
individuals  who at the  beginning  of such  agreement  constitute  the board of
directors of the Company  cease for any reason to constitute at least a majority
thereof,  unless the  election  of each  director  who is not a director  at the
beginning  of  such  period  has  been  approved  in  advance  by the  directors
representing at least  two-thirds (2/3) of the directors then in office who were
directors at the beginning of the term of the agreement.

<PAGE>
     Michael Mitchell

     The Company  also has entered  into an  employment  agreement  with Michael
Mitchell. This agreement provides that Mr. Mitchell will serve as Vice President
of the Company, and will receive as compensation  therefor an annual base salary
of $115,000 per year, p to $25,000 in travel  expenses,  plus an incentive bonus
equal to 3% of the Company's pre-tax income,  as defined.  This agreement is for
an initial term which terminates one year from the effective date of the initial
public offering,  July 31, 1997, and provides that if Mr. Mitchell is terminated
after the initial term other than for "cause" (as defined"),  or dies or becomes
permanently  disabled,  the  Company  will pay to him  certain  severance.  This
agreement  contains  the same  change of control  provision  as set forth in Mr.
Rosen's  employment  agreement and also restricts Mr.  Mitchell from engaging in
competition  with the Company for the term  thereof and for one year  thereafter
and  contains  provisions   protecting  the  Company's  proprietary  rights  and
information.

Consulting Agreements

     The Company has entered into a consulting  agreement  with Alma  Management
Corp.  ("Alma"),  as of November 1, 1996.  Under this agreement,  which is for a
term ending October 31, 1998,  Alma has agreed to cause its two principals  (the
"Principals"),  to provide sales and marketing advisory and consulting  services
to the Company. Alma receives an annual consulting fee of $50,000 payable at the
Company's option in either cash or Common Stock. In addition,  Alma has received
30,000 shares of Common Stock and options to purchase  133,333  shares of Common
Stock at an exercise price of $1.50 per share.  One-third of the options vest on
May 1, 1997,  one-third  six months  thereafter  and the balance  vest on May 1,
1998.  The Company may  terminate  the  services of either  Principal  under the
consulting  agreement with Alma if such Principal cannot adequately  perform his
duties thereunder because of mental or physical  disability,  death or for "Just
Cause"  (as  defined).  The  consulting  agreement  provides  that if one of the
Principals is terminated by the Company, the consulting fee paid to Alma will be
reduced by one half and if both  Principals  are  terminated by the Company,  no
further  compensation will be paid to Alma. The consulting  agreement  restricts
Alma and the Principals  from engaging in  competition  with the Company for the
term thereof and for one year thereafter and contains provisions  protecting the
Company's trade secrets and proprietary rights and information.

Stock Plans

     1995 Long Term Incentive Plan

     In August 1995,  the Company  adopted The Mike's  Original,  Inc. 1995 Long
Term Incentive Plan (the "1995 Incentive  Plan") in order to motivate  qualified
employees of the Company,  to assist the Company in attracting  employees and to
align the interests of such persons with those of the Company's stockholders.

     The 1995 Incentive Plan provides for the grant of "incentive stock options"
within the meaning of the Section 422 of the Internal  Revenue Code of 1986,  as
amended, "non-qualified stock options," restricted stock, performance grants and
other types of awards to officers,  key employees,  consultants  and independent
contractors of the Company and its affiliates.

<PAGE>

     The 1995 Incentive  Plan,  which is administered by the Board of Directors,
authorizes the issuance of a maximum of 433,333  shares of Common Stock.  If any
award under the 1995  Incentive  Plan  terminates,  expires  unexercised,  or is
canceled,  the Common Stock that would  otherwise  have been  issuable  pursuant
thereto will be available for issuance  pursuant to the grant of new awards.  To
date, the Company has granted an aggregate of 306,667 options to purchase Common
Stock under the 1995 Incentive  Plan, of which 250,000 options have been granted
to  Michael  Rosen,  the  Company's  Chairman  of the Board and Chief  Executive
Officer.  33,333 of these options are exercisable for ten years from the date of
grant at a price of $3.00 per share and 216,667 of these options are exercisable
for ten  years  from the date of grant at a price of $1.50  per  share.  Another
56,667  options  have been  granted  to Steven A.  Cantor.  Each of the  options
granted to Mr.  Cantor are  exercisable  for a ten year term at a price of $1.50
per share. As of March 31, 1998, none of these options had been exercised.

     1996 Non-Qualified Stock Option Plan

     In  October  1996,  the  Company's  Board  of  Directors  approved  a  1996
Non-Qualified Stock Option Plan (the "Non-Qualified  Plan") which covers 500,000
shares  of the  Company's  Common  Stock.  The  options  become  exercisable  in
installments as determined at the time of grant by the Board of Directors. As of
the date of this Prospectus, the Company had granted 478,333 options to purchase
shares of Common  Stock under the  Non-Qualified  Plan at an  exercise  price of
$1.50 per share. Arthur G. Rosenberg,  Martin Pilossoph and Myron Levy have been
granted  options to purchase  23,333 shares of Common Stock each at the exercise
price of $1.50 per share pursuant to the Non-Qualified  Plan. Frederic D. Heller
has been  granted  options  to  purchase  58,333  shares of Common  Stock at the
exercise price of $1.50 per share pursuant to the  Non-Qualified  Plan. Alma has
been granted  options to purchase  133,333 shares of Common Stock at an exercise
price of $1.50 per share pursuant to the  Non-Qualified  Plan.  Steven A. Cantor
has been  granted  options  to  purchase  76,667  shares of  Common  Stock at an
exercise price of $1.50 per share.  As of March 31, 1998,  none of these options
had been exercised.


<PAGE>


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT

     The following table sets forth the beneficial ownership of shares of voting
stock of the  Company,  as of March 31,  1998,  of (i) each person  known by the
Company  to  beneficially  own 5% or more of the  shares of  outstanding  Common
Stock, (ii) each of the Company's  executive  officers and directors,  and (iii)
all of the  Company's  executive  officers and  directors as a group.  Except as
otherwise  indicated,  all shares are  beneficially  owned,  and  investment and
voting power is held by, the persons named as owners:

<TABLE>
<CAPTION>

                                 Amount and Nature
     Name and Address of         of Shares                 Percentage
     Beneficial Owner            Beneficially Owned        Ownership
     -------------------         -------------------       -----------
     <S>                              <C>                     <C> 
     Michael Rosen (1)                283,333  (2)             8.3%
     Rachelle Rosen (1)               283,333  (3)             8.3%
     Steven A. Cantor (1)             432,295  (4)            12.9%
     Annette Cantor                   298,650                  9.2%
     Michael Mitchell                       0  (5)              *
     Arthur G. Rosenberg (1)           23,333  (6)              *
     Martin Pilossoph (1)              23,333  (6)              *
     Frederic D. Heller (1)            75,000  (7)             2.2%
     Myron Levy (1)                    24,167                   *
     Louis P. Solferino (8)           180,034                 5.6%
     Michael Jones (9)                146,342                 4.5%
     The Moshe Isaac Foundation (10)  200,000                 6.2%
     Food Commodities Limited (11)    266,667                 7.8%
     All officers and directors
      as a group (6  persons)         370,834  (12)          10.9%

* less than one percent (1%) unless otherwise indicated.
<FN>
(1)  The address for each of these persons is 350 Theodore  Fremd  Avenue,  Rye,
     New York 10580.
(2)  Includes  options to purchase  33,333  shares of Common Stock granted under
     the 1995  Long-Term  Incentive  Plan in May 1996 and  options  to  purchase
     166,667  shares of Common Stock granted under the 1995 Long- Term Incentive
     Plan in October 1996. Does not include options to purchase 50,000 shares of
     Common Stock granted under the 1995 Incentive Plan in May 1997.
(3)  Represents  Common  Stock and  options to  purchase  Common  Stock owned by
     Michael Rosen, Ms. Rosen's husband. Rachelle Rosen otherwise owns no shares
     of Common Stock.
(4)  Includes  options to purchase  56,667  shares of Common Stock granted under
     the 1995 Long-Term  Incentive Plan and options to purchase 76,666 shares of
     Common Stock granted under the 1996 Non-Qualified Plan.
(5)  Does not include  options to purchase 66,667 shares of Common Stock granted
     under the 1996 Non-Qualified Plan.
(6)  Includes  options to purchase  23,333  shares of Common Stock granted under
     the 1996 Non-Qualified Plan.
(7)  Includes  options to purchase  58,333  shares of Common Stock granted under
     the 1996 Non-Qualified Plan.
(8)  The address for Mr. Solferino is 115 Blue Spruce Road, Levittown,  New York
     11756.
(9)  The  address for Mr.  Jones is 86 West Main  Street,  East Islip,  New York
     11730.
(10) The address for The Moshe Isaac  Foundation is c/o Teaneck  Nursing Center,
     1104 Teaneck Road, Teaneck,  New Jersey 07666. The principal of this entity
     is Michael Koenig.
(11) The  address  for Food  Commodities  Limited is Bel Royal  House,  Hilgrove
     Street,  St. Helier,  Jersey JE24WG,  British Isles.  The principal of this
     entity is Robert S. Fraley.
(12) Includes  246,667  shares  issuable  upon the  exercise of options  granted
     pursuant to the Company's stock option plans.
</FN>
</TABLE>

<PAGE>


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In April 1997,  the Company issued 150,000 shares of Common Stock to Steven
A.  Cantor,  the  Company's  largest  stockholder,   as  consideration  for  the
termination  of his three year  consulting  agreement  providing for payments of
$125,000 annually, which would have commenced on the Company's IPO.

     In December 1996, the Company issued a convertible  promissory  note to The
Moshe  Isaac  Foundation  bearing  interest  at the rate of 8% per  annum in the
principal amount of $225,000 (the "Convertible  Note"). The Convertible Note was
to paid in full the  earlier  of five  (5) days  after  the  closing  date of an
initial public offering or December 31, 1997. In lieu of receiving payment,  the
holder of the Convertible  Note has the right to convert within five (5) days of
the closing of such initial public offering into 200,000 shares of Common Stock.
In April 1997, such note was converted into 200,000 shares of Common Stock.

     In October  1996,  the  Company  issued  16,667  shares of Common  Stock to
Frederic D.  Heller,  the  Company's  Vice  President-Finance,  Treasurer  and a
director,  as payment for services  rendered  during the year ended December 31,
1996.  These shares were valued at $3.00 per share,  the  estimated  fair market
value of the Common Stock at the date of issuance.

     On August 28, 1996,  Michael  Rosen,  the Company's  Chairman of the Board,
President  and Chief  Executive  Officer  was  issued a  promissory  note in the
principal  amount of $206,250.  The funds that Mr. Rosen loaned the Company were
the proceeds of a sale by Mr. Rosen to investors of 183,333 shares of his Common
Stock at a price of $1.12 per share.  This loan bears  interest  at a rate of 8%
and  initially was payable the earlier of (i) thirteen (13) months from the date
of the loan, or (ii) the date the Company  successfully  consummates  an initial
public  offering of securities  of the Company,  but only to the extent that the
over-allotment  option is exercised in such  offering and only from the proceeds
received  by the Company  from the  exercise of the  over-allotment  option.  In
September  1996,  the  maturity  date of this  promissory  note was  revised  to
September  30, 1998.  In addition,  the revised  promissory  note  provides that
one-half  of the  outstanding  principal  amount  of the note  will be paid with
accrued  interest thereon in the event the Company  successfully  consummates an
initial  public  offering of securities  of the Company,  but only to the extent
that the over-allotment  option was exercised in such offering and only from the
proceeds received by the Company from the exercise of the over-allotment option.
As of March 31, 1998, this loan remained outstanding.

     In August,  September and October 1996,  the Company  received  three loans
from Steven A.  Cantor  aggregating  $253,750.  A portion of the funds that this
stockholder loaned the Company was a result of the stockholder selling shares of
his Common Stock to an investor.  In August 1996, this  stockholder  sold 38,889
shares of his Common  Stock at a price of $1.12 per share.  In  September  1996,
this  stockholder sold 23,333 shares of his Common Stock at a price of $1.50 per
share.  These loans,  which were  consolidated  into one note in September 1997,
bear  interest  at a rate of 8% and are payable the earlier of (i) June 1, 1997,
or (ii) with respect to $123,750 of the principal  amount,  the date the Company
successfully  consummates  an  initial  public  offering  of  securities  of the
Company,  but only to the  extent  that  either  the  over-allotment  option  is
exercised  in such  offering or within  ninety  (90) days after the  underwriter
elects not to exercise the over-allotment option. This loan was repaid in 1997.

     On May 30, 1996,  the Company  received loans of $50,000 each from Louis P.
Solferino and Michael P. Jones. The loans bear interest at an annual rate of 10%
and initially were due on demand.  In September 1996, the maturity date of these
promissory  notes was  revised to occur the  earlier of (i) May 30, 1998 or (ii)
the date the Company  successfully  consummates  an initial  public  offering of
securities of the Company, but only to the extent that the over-allotment option
is exercised in such offering and only from the proceeds received by the Company
from the exercise of the over-allotment  option. In addition, the Company issued
6,667 shares of its Common Stock to each of Mr.  Solferino and Mr. Jones.  These
shares were valued at $3.00 per share, the fair market value of the Common Stock
at the date of issuance. As of March 31, 1998, these loans remained outstanding.

     In  February  1996,  the  Company  issued   $150,000  and  $75,000  of  12%
convertible promissory notes to Mr. Solferino and Mr. Jones, respectively, which
were  payable on the earlier of August 31, 1996 or upon the  consummation  of an

<PAGE>

interim  financing  as  contemplated  by a letter of intent  with an  investment
banker for an initial public offering of the Company's securities. In June 1996,
in lieu of receiving  payment in such event,  the holders of the notes exchanged
the notes,  based on a conversion  price  determined  by the notes,  into Second
Private  Placement  Units. In April 1997, Mr.  Solferino and Mr. Jones converted
$16,050 and $8,025 of the  principal  and accrued  interest into 8,025 and 4,013
shares of Common Stock, respectively.

     During the  fiscal  year  ended  March 31,  1995,  the  Company  issued two
promissory  notes of $25,000 each to Elizabeth  Pilossoph,  who is the mother of
Rachelle  Rosen,  the  mother-in-law  of Michael  Rosen,  and the wife of Martin
Pilossoph.  These notes were  originally  due in  November  and  December  1998,
respectively.  The Company repaid one of these notes in April 1995. In September
1995, the maturity date of the outstanding  promissory note was revised to occur
the earlier of the Company receiving proceeds from a securities offering or June
1, 1996. In April 1996, the maturity date of the outstanding promissory note was
revised to occur  subsequent  to the  repayment of the Penn Note issued in April
1996. In September  1996, the maturity date of this  promissory note was revised
to occur the  earlier of (i)  February  1, 1998 or (ii) upon the  occurrence  of
events  defined by the note as a "Change  in  Control."  Interest  accrues at an
annual rate of 6% and is payable at the maturity of the note.

     During the fiscal year ended March 31, 1994, the Company borrowed  $100,000
from the  mother of Steven A.  Cantor.  The loan,  which was  originally  due on
demand,  was formalized in the form a promissory note during  September 1995. In
April 1996,  the maturity date of the $100,000  obligation  was revised to occur
subsequent to the repayment of the Penn Note issued in April 1996.  The loan was
non-interest bearing through April 1994. From May 1994 through maturity interest
accrues at an annual rate of 6% and is payable upon maturity. In September 1996,
the maturity date of this  promissory  note was revised to occur the earlier of:
(i) February 1, 1998 or (ii) upon the  occurrence of events  defined by the note
as a "Change in  Control."  During the fiscal  year ended  March 31,  1995,  the
Company  borrowed an additional  $100,000 from Ms.  Cantor.  The loan was due on
demand with interest at an annual rate of 6%. The Company repaid $50,000 of this
loan in March 1995, and repaid the remaining $50,000 during April 1995.

     During the fiscal year ended March 31,  1994,  the Company  obtained  loans
from Rachelle Rosen and issued promissory notes of $40,000 and $15,000 which are
payable in May and June 1998,  respectively.  Interest accrues at an annual rate
of 8% and is payable at the maturity date of the notes.

     As a general  rule,  all  transactions  among the Company and its officers,
directors or stockholders have been, and in the future will be, made on terms no
less favorable to the Company than those available from unaffiliated parties.

<PAGE>


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

(a)   Exhibits

3.1   Restated Certificate of Incorporation of the Registrant (*).
3.2   By-laws of the Registrant (*).
10.1  1995 Long Term Incentive Plan (*).
10.2  1996 Non-Qualified Stock Option Plan (*).

10.3  Employment  Agreement dated June 1, 1995 between the Registrant and 
      Michael Rosen, as amended (*).

10.4  Consulting Agreement dated  November 4, 1996 the Registrant and Steven A.
      Cantor (*).

10.5  Consulting Agreement dated November 1, 1996 between the Registrant and 
      Alma Management Corp.(*) 

10.6  Form of Second Private Placement Note (*).

10.7  Form of Second Private Placement Unit Subscription Agreement (*).

10.8  Form of  Indemnification  Agreement between the Registrant and its 
      officers and directors (*).

10.9  Credit Agreement dated April 10, 1996, as amended, between the Registrant
      and The Penn Traffic Company (*).

10.10 Manufacturing, Delivery & Pricing Agreement dated as of September 11, 
      1996 between the Registrant and Fieldbrook Farms (*).

10.11 Asset Purchase Agreement between New Yorker Frozen Desserts, Inc., New
      Yorker  Ice Cream  Corp,  Kerry  Group  Ltd.,  Ted  Ketsoglou  and the
      Registrant dated December 18, 1997.

10.12 Asset Purchase Agreement between New Yorker Frozen Desserts,  Inc., 
      Jerry's Ice Cream Co., Inc. and the Registrant dated December 18, 1997.

10.13 Credit Agreement with Fieldbrook Farms dated March 20, 1997 (*).

10.14 Modification Agreement with The Penn Traffic Company dated April 15, 1997 
      (*).

10.15 Employment Agreement dated July 16, 1997 between the Registrant and 
      Michael Mitchell (*).

21    Subsidiaries of Registrant

          Name                           State of Incorporation
          ----                           ----------------------

      New York Frozen Desserts, Inc.           New York

27    Financial Data Schedule
-------

(*) Incorporated by reference to Registration Statement on Form SB-2 
(No. 333-21575) filed July 23, 1997.

(b)  Reports on Form 8-K

     1. Report on Form 8-K dated  September 10, 1997 with respect to 
        Items 4 and 7. 
     2. Report on Form 8-K dated January 15, 1998 with respect to Item 4.


<PAGE>


                                   SIGNATURES

     Pursuant to the  requirements  of Section 13 or 15(d) of the Securities Act
of 1933,  the  Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on the 14th day of April, 1998.

                               MIKE'S ORIGINAL, INC.


                               By: /s/ Michael Rosen
                                  ------------------------------------ 
                                  Michael Rosen, Chairman of the Board
                                  Chief Executive Officer and President

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has been  signed on April 14,  1998 by the  following  persons in the
capacities indicated:

          Signature                 Title
          ---------                 -----

/s/ Michael Rosen                 Chairman of the Board, Chief Executive Officer
Michael Rosen                     President and Director

/s/ Michael Mitchell              Vice President - Marketing and Sales
Michael Mitchell

/s/ Frederic D. Heller            Director
Frederic D. Heller

_______________________________   Director
Myron Levy

/s/ Martin Pilossoph              Director
Martin Pilossoph

/s/ Arthur G. Rosenberg           Director
Arthur G. Rosenberg


<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

        <TABLE>
        <CAPTION>
                                                                                 Page(s)
                                                                                -------
                    
          <S>                                                                   <C>
          Report of Independent Certified Public Accountants - Current Auditor   F - 2
          Report of Independent Certified Public Accountants - Prior Auditor     F - 3
          Financial Statements:
            Balance Sheets                                                       F - 4
            Statements of Operations                                             F - 5
            Statement of Changes in Stockholders' Deficit                        F - 6
            Statements of Cash Flows                                             F - 7

          Notes to Financial Statements                                          F - 9

        </TABLE> 




























                                      F - 1

<PAGE>


                          INDEPENDENT AUDITOR'S REPORT



          To the Board of Directors and Stockholders
          Mike's Original, Inc.

          We have audited the balance sheet of Mike's Original, Inc. (a Delaware
          corporation)  as of December 31, 1997,  and the related  statements of
          operations,  changes in stockholders'  equity,  and cash flows for the
          year then ended. These financial  statements are the responsibility of
          the Company's management.  Our responsibility is to express an opinion
          on these  financial  statements  based on our audit.  

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

          In our  opinion,  the  1997  financial  statements  referred  to above
          present fairly, in all material  respects,  the financial  position of
          Mike's Original,  Inc. as of December 31, 1997, and the results of its
          operations  and its cash flows for the year then  ended in  conformity
          with generally accepted accounting principles.

          The accompanying financial statements have been prepared assuming that
          the Company will continue as a going  concern.  As discussed in Note 2
          to the  financial  statements,  the Company has incurred a net loss of
          $4,502,645  for the year ended  December  31, 1997 and as of that date
          current  liabilities  exceeded  current  assets by $1,062,651  and the
          stockholders'  deficit  aggregated  $1,051,056.  These factors,  among
          others,  raise  substantial  doubt  about  the  Company's  ability  to
          continue  as a  going  concern.  Management's  plans  regarding  these
          matters are also described in Note 2. The financial  statements do not
          include  any  adjustments  that might  result from the outcome of this
          uncertainty.

                                          /s/ Lazar Levine & Felix LLP
                                          LAZAR LEVINE & FELIX LLP


          New York,  New York 
          February 25, 1998, except for Note 14, 
          the date of which is March 4, 1998

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
   Mike's Original, Inc.

We have audited the accompanying  balance sheet of Mike's  Original,  Inc. as of
December  31,  1996,  and the  related  statements  of  operations,  changes  in
stockholders'  deficit and cash flows for the year then ended.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Mike's Original,  Inc. as of
December 31, 1996,  and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern. As shown in the financial  statements,
the Company incurred a net loss of $4,050,547 during the year ended December 31,
1996,  and, as of that date,  the  Company's  current  liabilities  exceeded its
current  assets  by  $2,539,788  and the  Company's  stockholders'  deficit  was
$2,996,411. These factors, among others, as discussed in Note 2 to the financial
statements, raise substantial doubt about the Company's ability to continue as a
going concern.  Management's plans in regard to these matters are also described
in Note 2. The financial  statements do not include any  adjustments  that might
result from the outcome of this uncertainty.

/s/ GRANT THORNTON LLP
GRANT THORNTON LLP

Melville, New York
April 17, 1997 (except for Note 8, as to
which the date is June 20, 1997)










<PAGE>


                              MIKE'S ORIGINAL, INC.
                                 BALANCE SHEETS
                        AS OF DECEMBER 31, 1997 AND 1996

                               - ASSETS (Note 8) -

<TABLE>
<CAPTION>
     
                                                               1997       1996
                                                               ----       ----  
<S>                                                         <C>         <C>     
CURRENT ASSETS:
  Cash                                                      $ 438,277   $ 32,523
  Accounts receivable, less allowance for doubtful 
   accounts of $15,916 and $20,751 for 1997 and 
   1996, respectively                                          12,600     61,219
  Inventories (Notes 3b and 4)                                143,899    247,608
  Prepaid expenses                                             17,303     16,589
                                                             --------   -------- 
TOTAL CURRENT ASSETS                                          612,079    357,939
                                                             --------   -------- 
FIXED ASSETS - NET (Notes 3c and 5)                             3,505     14,478
                                                             --------   -------- 
OTHER ASSETS:
  Trademarks and organization costs, net of accumulated 
   amortization of $15,489 and $11,787 for 1997 and 
   1996, respectively (Note 3d)                                 3,022      6,724
  Security deposits and other assets                            5,068     19,091
  Deferred offering costs                                         -       45,000
                                                             --------   -------- 
                                                                8,090     70,815
                                                             --------   -------- 
                                                             $623,674   $443,232
                                                             ========   ======== 

               - LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) -

CURRENT LIABILITIES:
  Accounts payable - trade                                   $500,453 $1,104,336
  Accrued payroll and payroll taxes                            20,587     28,000
  Other accrued liabilities (Note 6)                          137,822    118,607
  Capital lease obligations - current portion                    -         9,957
  Notes payable - related parties (Note 7)                    486,250    253,750
  Current portion of long-term debt (Notes 8 and 13d)         529,618  1,383,077
                                                            ---------  --------- 
TOTAL CURRENT LIABILITIES                                   1,674,730  2,897,727
                                                            ---------  --------- 
LONG-TERM LIABILITIES:
  Notes payable - related parties (Note 7)                     -         486,250
  Capital lease obligations                                    -           3,611
  Accrued interest - related parties                           -          52,055
                                                            ---------  --------- 
                                                               -         541,916
                                                            ---------  --------- 

COMMITMENTS AND CONTINGENCIES (Notes 2, 12, 13 and 14)

STOCKHOLDERS' EQUITY (DEFICIT) (Notes 10 and 11):
  Preferred stock, $.01 par value; 500,000 shares 
   authorized; none issued or outstanding                      -           -
  Common stock, $.001 par value; 20,000,000 shares 
   authorized; 3,265,429 and 1,892,641 shares issued 
   and outstanding for 1997 and 1996, respectively              3,265      1,892
  Additional paid-in capital                               10,087,327  4,000,700
  Deferred financing costs                                     -        (360,000)
  Accumulated deficit                                     (11,141,648)(6,639,003)
                                                           ---------- ---------- 

                                                           (1,051,056)(2,996,411)
                                                           ---------- ---------- 
                                                           $  623,674 $  443,232
                                                           ========== ========== 
                             See accompanying notes
</TABLE>

<PAGE>


                              MIKE'S ORIGINAL, INC.
                            STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996


<TABLE>
<CAPTION>

                                                            1997           1996
                                                            ----           ----
<S>                                                      <C>          <C>       
SALES - NET (Notes 3e)                                   $  384,348   $2,392,258

COST OF SALES                                               451,198    1,439,635
                                                         ----------   ----------   

GROSS PROFIT (LOSS)                                         (66,850)     952,623
                                                         ----------   ----------   
OPERATING EXPENSES:
  Selling, marketing and shipping (Note 3f)                 723,861    2,596,500
  General and administrative                              2,177,698    2,193,602
  Research and development (Note 3h)                         28,594       70,632
                                                         ----------   ----------   

                                                          2,930,153    4,860,734
                                                         ----------   ----------   

LOSS FROM OPERATIONS                                     (2,997,003)  (3,908,111)

  Interest expense - net of interest income of 
   $30,744 and $547 for 1997 and 1996, respectively      (1,505,642)    (142,436)
                                                         ----------   ----------   
LOSS BEFORE INCOME TAXES                                 (4,502,645)  (4,050,547)
  Provision for income taxes (Notes 3i and 9)                 -            -
                                                         ----------   ----------   
NET LOSS                                                $(4,502,645) $(4,050,547)
                                                         ==========   ==========   
BASIC LOSS PER SHARE (Note 3j)                               $(1.69)      $(2.54)
                                                             ======       ======   
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 3j)      2,662,013    1,592,106
                                                         ==========   ==========   
</TABLE>


                             See accompanying notes

<PAGE>


                              MIKE'S ORIGINAL, INC.
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                  Additional   Deferred                   Total
                               Common   Common    Paid-in      Financing     Accumulated  Stockholders'
                               Shares   Amount    Capital      Costs         Deficit      Deficit
                               ------   ------    -----------  ----------    -----------  --------------  

<S>                          <C>         <C>       <C>          <C>          <C>           <C>         
Balance at January 1, 1996   1,362,160   $1,362    $ 829,742    $   -        $(2,588,456)  ($1,757,352)

Issuance of common stock for
 services rendered              69,231       69      207,623        -               -          207,692
Sale of common stock to 
 investors, net of issuance 
 costs of $330,437             461,250      461    1,052,853        -               -        1,053,314
Compensation attributable to 
 the transfer of common stock 
 owned by the founder for 
 services rendered                 -          -      100,000        -               -          100,000
Compensation attributable to the
 issuance of stock options         -          -      812,000        -               -          812,000
Compensation attributable to the
 release of shares held in escrow  -          -      265,000        -               -          265,000
Waiver of compensation payable to
 stockholders and founders         -          -      358,482        -               -          358,482
Imputed interest - convertible 
 debt                              -          -      375,000      (375,000)         -              -
Amortization of imputed interest
 - convertible debt                -          -        -            15,000          -           15,000
Net loss                           -          -        -             -        (4,050,547)   (4,050,547)
                               --------   --------   --------     --------    -----------   -----------

Balance at December 31, 1996 1,892,641    1,892    4,000,700      (360,000)   (6,639,003)   (2,996,411)

Amortization of imputed 
  interest - convertible debt     -         -           -          360,000          -          360,000
Conversion of debt into common 
  stock by creditor            320,288      320      455,938          -             -          456,258
Imputed interest - 
  convertible debt                -         -        426,715          -             -          426,715
Issuance of common stock 
  for imputed interest          67,000       67      301,433          -             -          301,500
Issuance of common stock 
  for services rendered        285,500      286    1,330,964          -             -        1,331,250
Waiver of compensation payable to
 founder                           -         -        27,333          -             -           27,333
Imputed interest attributable to
 warrants issued and loans         -         -       202,500          -             -          202,500
Proceeds from Company's initial
 public offering               700,000      700    3,341,744          -             -        3,342,444

Net loss                           -         -         -              -      (4,502,645)    (4,502,645)
                             ---------  --------  ----------     --------    ------------  ------------
BALANCE AT DECEMBER 31,
 1997                        3,265,429   $3,265  $10,087,327     $    -      $(11,141,648) $(1,051,056)
                             =========  ========  ==========     ========    ============  ============

                             See accompanying notes
</TABLE>

<PAGE>


                              MIKE'S ORIGINAL, INC.
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                1997            1996
                                                                ----            ----
<S>                                                        <C>            <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                   $(4,502,645)   $(4,050,547) 
 Adjustments to reconcile net loss to net cash
 used in operating activities:     
  Depreciation and amortization                                  14,675         14,718
  Allowance for doubtful accounts                                (4,835)        13,863
  Imputed interest                                            1,327,051         15,000
  Compensation expense attributable to issuance of 
   common stock for services rendered                         1,325,250        207,692
  Compensation expense attributable to the release 
   of common stock from escrow account                             -           265,000
  Compensation expense attributable to issuance of 
   common stock and stock options                                6,000         812,000
  Compensation expense attributable to the 
   transfer of common stock by founder for
   services rendered                                               -           100,000
 Changes in operating assets and liabilities:
  Decrease in accounts receivable                               53,454          78,320
  Decrease (increase) in inventories                           103,709         (70,723)
  (Increase) in prepaid expenses and other current assets         (714)        (21,089)
  (Decrease) increase in accounts payable                     (130,986)        812,163
  (Decrease) increase in accrued expenses and other 
    liabilities                                                (12,920)         79,717
                                                            ----------      ----------
   Net cash used in operating activities                    (1,821,961)     (1,743,886)
                                                            ----------      ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Refund (payment) of security deposits                          14,023          (1,000)
                                                            ----------      ----------
   Net cash provided by (used in) investing activities          14,023          (1,000)
                                                            ----------      ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from convertible note payable                           -            225,000
 Proceeds from 12% subordinated notes payable - stockholders      -            153,750
 Repayment of 12% subordinated notes payable - stockholders   (123,750)           -
 Net proceeds from issuance of common stock                  3,387,444       1,053,314
 Proceeds from notes payable to related parties                   -            560,000
 Payment of notes payable to related parties                  (253,750)           -
 Payment of capital lease obligations                          (13,568)         (9,147)
 Payment of notes payable                                         -           (244,730)
 Proceeds from line of credit                                     -             24,134
 Payment of line of credit                                     (14,130)           (628)
 Proceeds from short-term loans                                440,000            -
 Repayment of short-term loans                                (315,000)           -
 Repayment of notes payable - trade creditors                 (893,554)           -
                                                          ------------     -----------  
   Net cash provided by financing activities                 2,213,692       1,761,693
                                                          ------------     -----------  
NET INCREASE IN CASH AND CASH EQUIVALENTS                      405,754          16,807

 Cash and cash equivalents, at beginning of year                32,523          15,716
                                                           -----------     ----------- 
CASH AND CASH EQUIVALENTS, AT END OF YEAR                  $   438,277      $   32,523
                                                           ===========     ===========  

                             See accompanying notes
</TABLE>

<PAGE>


                              MIKE'S ORIGINAL, INC.
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                            1997           1996
                                                            ----           ----
<S>                                                       <C>           <C> 
SUPPLEMENTAL CASH FLOW INFORMATION:
 (a) Interest paid                                        $267,369       $64,685
     Taxes paid                                               -              -

 (b) During 1997 and 1996,  the Company  converted  
     $432,077 and  $1,176,437 of trade  accounts  
     payable to notes  payable,  respectively.  During 
     1997,  the Company  also  converted  $39,920 of 
     accounts  payable and  $380,000 of notes
     payable into common stock

 (c) Compensation  accrued at December 31, 1996 of 
     $27,333 was waived by founder and converted 
     to equity










                             See accompanying notes
        </TABLE>

        <PAGE>


                              MIKE'S ORIGINAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


        NOTE 1 -  ORGANIZATION:

        Mike's  Original,  Inc. (the "Company") was  incorporated in Delaware in
        May 1994 as successor to Melanie Lane Farms, Inc.  ("Melanie  Farms"), a
        New York  corporation  formed in 1993.  In June 1994,  Melanie Farms was
        merged into the Company. As both entities were under common control, the
        merger was accounted for in a manner  similar to a pooling of interests.
        On December 31, 1997, a new entity, New York Frozen Desserts,  Inc., was
        incorporated  in New York, as a wholly-owned  subsidiary of the Company,
        for the purpose of making acquisitions.

        Effective  December 31, 1995,  the Company  changed its fiscal  year-end
        from March 31 to December 31.

        Since April 1, 1993,  the Company has been engaged in the  marketing and
        distribution of super- premium ice cream products.  The Company markets,
        sells and distributes  Mike's Original  Cheesecake Ice Cream, a blend of
        ice cream and cheesecake ingredients.  This product line is offered in a
        variety of flavors mainly to  supermarkets  and grocery stores and also,
        to a lesser extent,  to  convenience  stores,  food service  outlets and
        warehouse  clubs.  The  Company's  products  are  sold in  approximately
        fourteen states,  including New York,  California,  Pennsylvania and New
        Jersey with sales generally  concentrated on the East and West Coasts of
        the United States (see Note 12).


        NOTE 2  - BASIS OF PRESENTATION:

        The Company has incurred losses from  operations  since its inception in
        1993 and,  at  December  31,  1997,  has a  stockholders'  deficit and a
        working capital deficit of $1,051,056 and $1,062,651,  respectively.  At
        December 31, 1996, the Company had a stockholders' deficit and a working
        capital   deficit  of  $2,996,411  and   $2,539,788,   respectively.   A
        significant  portion  of these  amounts  were  incurred  as a result  of
        intense  marketing by the Company.  Payments were made for  introductory
        programs   with   supermarkets   and  other  food  chain   retailers  of
        approximately  $201,000 and  $622,000  for the years ended  December 31,
        1997 and 1996, respectively. Payments for product advertising, promotion
        and marketing were also made aggregating $326,000 and $1,526,000 for the
        years ended December 31, 1997 and 1996, respectively. Further, net sales
        for the year ended  December  31,  1997 were  minimal and the Company is
        continuing  to incur  losses  from  operations.  The  Company has relied
        extensively  on  borrowings  to  finance  its  operations  and in  1997,
        successfully  completed an initial  public  offering of its common stock
        (see Note 10), the proceeds of which were used primarily to repay debt.

        The  circumstances  described  above raise  substantial  doubt about the
        Company's ability to continue as a going concern.  Management's plans in
        regard  to this  matter  are to change  the  emphasis  of the  Company's
        operations  from  marketing  and  distributing  super-premium  ice cream
        products to marketing and distributing frozen desserts that will include
        a line or lines of super- premium ice cream products.  Management  hopes
        to   accomplish   this  plan  through  the  strategic   acquisition   of
        distribution companies,  concentrated in large metropolitan areas, which
        will provide new brands and  customers,  distribution  expertise  and an
        operations  center that can absorb future  acquisitions.  The Company is
        engaged in discussions with nationally known companies to obtain 
        to market and distribute product bearing the name of the licenser. See 
        Notes 13f and 14.

        <PAGE>


                              MIKE'S ORIGINAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


        NOTE   2 - BASIS OF PRESENTATION (Continued):

        These  acquisitions and distribution  licenses would be financed from an
        additional  offering of  securities  planned  for the second  quarter of
        1998. If an offering cannot be consummated or other financing  obtained,
        the  Company  would  be  hard  pressed  to  continue.  The  Company  has
        sufficient cash on hand and product to sell to last until the end of the
        second  quarter of 1998.  The  financial  statements  do not include any
        adjustments that might result from this uncertainty.


        NOTE   3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

        (a)  Use of Estimates in Financial Statement Presentation:

        The  preparation  of  these  financial  statements  in  accordance  with
        generally accepted  accounting  principles  requires  management to make
        estimates  and  assumptions  that could  affect the amounts  reported in
        these  financial  statements  and related  notes.  Actual  results could
        differ from these estimates.

        (b)  Inventories:

        Inventories  are stated at the lower of cost or market value,  with cost
        determined on a first-in, first out basis.

        (c)  Fixed Assets:

        Fixed  assets  are  stated  at  cost  less   accumulated   depreciation.
        Depreciation of fixed assets is recorded on a  straight-line  basis over
        their estimated  useful lives ranging from three to five years.  Certain
        leased  computer  equipment  with  future  rental  payments  for periods
        through 1998 have been capitalized.  These amounts are included in fixed
        assets within the accompanying  balance sheets and are being depreciated
        over the  estimated  useful life of the  equipment or term of the lease,
        whichever is shorter.

        (d)  Other Assets:

        Costs related to trademark  and  organizational  expenditures  have been
        deferred  and are being  amortized  on a  straight-line  basis over five
        years.

        (e)  Revenue Recognition:

        Revenue from the sale of ice cream products is recognized upon shipment.
        Sales are presented net of distribution fees of $95,679 and $527,540 for
        the years ended December 31, 1997 and 1996, respectively.  A significant
        portion of the Company's sales is made to one distributor  pursuant to a
        distribution  agreement  which provides for the payment of  distribution
        fees based upon a  percentage  of sales,  price  protection  and certain
        rights of return on product  unused by third  parties.  A provision  for
        such costs is made as revenue is recognized;  however, costs relating to
        price  protection  have not been  material  to date.  This  distribution
        agreement was terminated by the distributor in September 1997.

        <PAGE>


                              MIKE'S ORIGINAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


        NOTE   3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

        (f)  Advertising:

        Advertising  costs are charged to operations when incurred.  Advertising
        costs  charged to  operations  were  $93,000 and  $346,000 for the years
        ended December 31, 1997 and 1996, respectively.

        (g)  Introductory Programs:

        Payments  for  introductory  programs  are  made  to  certain  customers
        (supermarkets  and other  food  chain  retailers)  in  exchange  for the
        Company  obtaining retail shelf space and are charged to operations when
        the Company  initially ships products to customers under such agreement.
        No costs of  introductory  programs are deferred as of December 31, 1997
        and 1996.

        (h) Research & Development:

        Research & development expenditures,  primarily for product development,
        are expensed as incurred.

        (i)  Income Taxes:

        Deferred income taxes are recognized for temporary  differences  between
        the financial  statement and income tax bases of assets and  liabilities
        and loss  carryforwards for which income tax benefits are expected to be
        realized in future years. A valuation  allowance has been established to
        offset the deferred tax assets since it is not more likely than not that
        such deferred assets will be realized. The effect on deferred taxes of a
        change in tax rates is  recognized in income in the period that includes
        the enactment date.

        (j)  Income Per Common Share:

        The Company has adopted  SFAS 128  "Earnings  Per Share"  ("SFAS  128"),
        which has changed the method of calculating earnings per share. SFAS 128
        requires the presentation of "basic" and "diluted" earnings per share on
        the face of the income  statement.  Prior period earnings per share data
        has been  restated in  accordance  with  Statement  128. Loss per common
        share is  computed  by  dividing  the net loss by the  weighted  average
        number of common shares and common equivalent shares  outstanding during
        each period.

        (k)  Statements of Cash Flows:

        For the purpose of the statements of cash flows,  the Company  considers
        all highly liquid  investments  purchased  with a remaining  maturity of
        three months or less to be cash equivalents.

        (l)  New Accounting Pronouncements:

        SFAS  130  "Reporting  Comprehensive  Income"  is  effective  for  years
        beginning after December 15, 1997 and early adoption is permitted.  This
        statement  prescribes  standards for reporting  comprehensive income and
        its components. Since the Company currently does not have any items of
        other comprehensive income a statement of comprehensive income is not 
        yet required.

        <PAGE>


                              MIKE'S ORIGINAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


        NOTE   3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

        (l)  New Accounting Pronouncements (continued):

        SFAS 131  "Disclosures  About  Segments  of an  Enterprise  and  Related
        Information",  is effective for years  beginning after December 15, 1997
        and early adoption is encouraged. The Company does not presently believe
        that it operates in more than one identifiable segment.

        See also Income Per Common Share, above.

        (m) Impact of the Year 2000 Issue:

        The year 2000 issue is the result of  computer  programs  being  written
        using two digits rather than four to define the applicable  year. Any of
        the Company's  computer programs that have date- sensitive  software may
        recognize  a date using "00" as the year 1900 rather than the year 2000.
        This could  potentially  result in a system  failure or  miscalculations
        causing  disruptions of  operations,  including,  among other things,  a
        temporary inability to process transactions, send invoices, or engage in
        other  similar  normal  business  activities.  The  Company  had already
        planned on  upgrading  its  computer  software to  increase  operational
        efficiencies  and  information  analysis  and will  ensure  that the new
        systems  properly  utilize dates beyond  December 31, 1999.  The cost of
        this  upgrade  project,  as it  relates to the year 2000  issue,  is not
        expected to have a material effect on the operations of the Company.


        NOTE  4 - INVENTORIES:

        Inventories consist of the following as of December 31, 1997 and 1996:

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

        <S>                                   <C>         <C>     
        Finished goods                        $143,899    $ 97,536
        Raw materials                             -        150,072
                                              --------    --------
                                              $143,899    $247,608
                                              ========    ========    
        </TABLE>
        
        NOTE  5 - FIXED ASSETS:
        
        
         
        Fixed assets consist of the following as of December 31, 1997 and 1996:
        <TABLE>
        <CAPTION>

                                            1997      1996
                                            ----      ----
        <S>                                <C>      <C>    
        Computer equipment                 $29,447  $29,447
        Office equipment                     6,000    6,000
                                           -------  -------
                                            35,447   35,447
        Less: accumulated depreciation      31,942   20,969
                                           -------  -------
                                           $ 3,505  $14,478
                                           =======  =======
        </TABLE>
 

        <PAGE>


                              MIKE'S ORIGINAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


        NOTE  6 - OTHER ACCRUED LIABILITIES:

        Other  accrued  liabilities  consisted  the following as of December 31,
        1997 and 1996:

        <TABLE>
        <CAPTION>
                                                    1997          1996
                                                    ----          ----
        <S>                                       <C>           <C>    
        Accrued distribution fee                   $ 1,499       $ 7,921
        Distributors' deposits                         -          46,739
        Accrued interest payable (Notes 7 and 8)   124,288        18,947
        Professional fees payable                   12,035        45,000
                                                  --------      --------
                                                  $137,822      $118,607
                                                  ========      ========
        </TABLE>
         
        NOTE  7  - NOTES PAYABLE TO RELATED PARTIES:

        During the fiscal year ended March 31, 1994, the Company  obtained loans
        from the  founder  and issued  promissory  notes of $40,000  and $15,000
        which are payable in May and June 1998,  respectively.  Interest accrues
        at an  annual  rate of 8% and is  payable  at the  maturity  date of the
        notes.  Accrued  interest  payable  related  to these  notes  amounts to
        $18,957 and $14,557 at December 31, 1997 and 1996, respectively.

        During the fiscal  year  ended  March 31,  1994,  the  Company  borrowed
        $100,000  from a  shareholder  of  the  Company.  The  loan,  which  was
        originally  due on demand,  was  formalized  in the form of a promissory
        note during  September  1995.  In April 1996,  the maturity  date of the
        $100,000  obligation was revised to occur subsequent to the repayment of
        the promissory note issued in April 1996 as further described in Note 8.
        The loan was  non-interest  bearing  through  April 1994.  From May 1994
        through  maturity,  interest  accrues  at an  annual  rate  of 6% and is
        payable upon  maturity.  In September  1996,  the maturity  date of this
        promissory  note was revised to occur the  earlier  of: (i)  February 1,
        1998 or (ii)  upon the  occurrence  of events  defined  by the note as a
        "Change  in  Control."  Accrued  interest  payable  related to this note
        amounts  to  $27,491  and  $21,491  at  December   31,  1997  and  1996,
        respectively.

        During the fiscal year ended  March 31,  1995,  the  Company  issued two
        promissory  notes of $25,000 each to an investor,  who is related to the
        founder  of the  Company,  which were  originally  due in  November  and
        December 1998,  respectively.  The Company repaid $25,000 of these notes
        in April 1995. In September  1995, the maturity date of the  outstanding
        promissory  note  was  revised  to  occur  the  earlier  of the  Company
        receiving proceeds from a securities  offering or June 1, 1996. In April
        1996, the maturity date of the  outstanding  promissory note was revised
        to occur  subsequent to the repayment of the  promissory  note issued in
        April  1996 as  further  described  in Note 8. In  September  1996,  the
        maturity date of this  promissory  note was revised to occur the earlier
        of: (i) February 1, 1998 or (ii) upon the  occurrence of events  defined
        by the note as a "Change in Control." Interest accrues at an annual rate
        of 6% and is payable at the maturity date of the note.  Accrued interest
        payable related to this note amounts to $6,174 and $4,674 at December 
        31, 1997 and 1996, respectively.

        <PAGE>


                              MIKE'S ORIGINAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


        NOTE  7  -  NOTES PAYABLE TO RELATED PARTIES (Continued):

        On May 30, 1996, the Company  received loans  aggregating  $100,000 from
        two  stockholders.  The loans  were  originally  due on  demand  bearing
        interest at a rate of 10%. In September 1996, the maturity date of these
        promissory  notes was revised to occur the  earlier of: (i)  twenty-four
        months  from  the  date of the  loans,  or (ii)  the  date  the  Company
        successfully consummates an initial public offering of securities of the
        Company,  but  only to the  extent  that  the  overallotment  option  is
        exercised in such  offering  and only from the proceeds  received by the
        Company from the exercise of the overallotment  option.  These notes are
        still outstanding at December 31, 1997. Accrued interest payable related
        to these notes  amounts to $15,833  and $5,833 at December  31, 1997 and
        1996, respectively.

        On August 28, 1996,  the founder of the Company was issued an additional
        promissory  note of  $206,250.  The funds  that the  founder  loaned the
        Company were a result of the founder selling 183,333 shares of his stock
        to an investor at a price of $1.12 per share.  This loan bears  interest
        at a rate of 8% and was originally  payable the earlier of: (i) thirteen
        months from the date of the loan, or (ii) the successful consummation of
        an initial public offering of securities of the Company, but only to the
        extent that the  overallotment  option is exercised in such offering and
        only from the proceeds  received by the Company from the exercise of the
        overallotment  option.  In September  1996,  the  maturity  date of this
        promissory note was revised to occur  twenty-four  months from September
        30,  1996.  In  addition,  the revised  promissory  note  provides  that
        one-half of the note will be paid with accrued interest in the event the
        Company   successfully   consummates  an  initial  public   offering  of
        securities of the Company, but only to the extent that the overallotment
        option is exercised in such offering and only from the proceeds received
        by the Company from the exercise of the  overallotment  option.  Accrued
        interest  related to this  borrowing  amounts  to $22,000  and $5,500 at
        December 31, 1997 and 1996, respectively.

        In August and September  1996,  the Company  received three loans from a
        stockholder  aggregating  $253,750.  A portion  of the  funds  that this
        shareholder  loaned the Company was a result of the shareholder  selling
        shares of his stock to investors.  In August 1996, this shareholder sold
        38,889  shares of his stock at a price of $1.12 per share.  In September
        1996,  the  shareholder  sold  23,333  shares of his stock at a price of
        $1.50 per  share.  These  loans each bear  interest  at a rate of 8% per
        annum and were  originally  payable the earlier of: (i) thirteen  months
        from the date of the loans,  or (ii) the date the  Company  successfully
        consummates an initial public offering,  but only to the extent that the
        overallotment  option is  exercised  in such  offering and only from the
        proceeds  received by the Company from the exercise of the overallotment
        option.  In September 1996, the maturity date of these  promissory notes
        was revised to June 1, 1997. In the event that the Company  successfully
        consummates an initial public  offering prior to June 1, 1997,  $123,750
        will be payable from such  proceeds and $130,000 will be payable 90 days
        therefrom.  In the event the  underwriter  exercises  its  overallotment
        option,  the balance  otherwise  payable in 90 days will be payable from
        such proceeds.  Accrued  interest  payable  related to these  borrowings
        amounted to $5,978 at December 31, 1996.  During 1997 the Company repaid
        the entire  balance of  $253,750  plus  interest  accrued to the date of
        repayment of $18,162.

        As of  December  31,  1997 and 1996,  loans  payable to related  parties
        aggregated  $486,250 and $740,000,  respectively.  Interest  accrued and
        unpaid at December  31, 1997 and 1996  aggregated  $90,455 and  $58,033,
        respectively.

        <PAGE>


                              MIKE'S ORIGINAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


        NOTE  8 - NOTES PAYABLE:

        In April 1996,  the Company  issued a  promissory  note in the amount of
        $830,275 in exchange for certain trade accounts payable. The Company was
        required to make  payments in monthly  installments  beginning  May 1996
        consisting of: (i) accrued interest, and (ii) principal in the amount of
        $12,000.  In addition  to these  monthly  installments,  the Company was
        required  to pay  additional  amounts  upon the  occurrence  of  certain
        events.  In the event the  Company did not  complete  an initial  public
        offering, the note was due in full on December 31, 1996. Interest on the
        promissory  note accrues at the prime rate plus 1% per annum.  This note
        is collateralized by substantially all of the assets of the Company. The
        balance of this note was $710,275 at December 31, 1996. Accrued interest
        payable related to this note amounted to $2,738 at December 31, 1996. In
        April 1997 the terms of the note were amended to provide for payments to
        the lender,  from the proceeds of the Company's initial public offering,
        in the  amount of  $575,000  with the  balance  of  $135,275  payable on
        December 31, 1997. In the event that the initial public  offering is not
        completed  by June 1, 1997,  all  amounts  outstanding  will then become
        immediately due and payable in full. Further, in April 1997, the Company
        issued a $221,550 convertible note due December 31, 1998 in exchange for
        a like amount of trade payables.  The convertible note bears interest at
        10% per annum,  payable at maturity,  and is  convertible  by the holder
        into the Company's  common stock at a conversion rate of $3.00 principal
        amount for each share of common stock at the option of the holder at any
        time prior to maturity. In June 1997, the Company renegotiated the terms
        of this agreement.  The renegotiated terms provide that if the Company's
        initial  public  offering is not completed by July 15, 1997, all amounts
        will then become  immediately due and payable in full. In addition,  the
        balance due to the lender from the  proceeds  of the  Company's  initial
        public  offering  was  increased  from  $575,000  to  $595,000  and  the
        principal  balance of the  convertible  note due  December  31, 1998 was
        reduced to  $201,000.  On August 8, 1997,  at the closing of the initial
        public  offering,  the  principal  amount plus all accrued  interest was
        paid. At December 31, 1997,  $115,275 plus accrued interest of $4,328 of
        the convertible note remains unpaid.

        On August 20, 1996, the Company  issued a promissory  note in the amount
        of  $289,482  in  exchange  for  certain  trade  accounts   payable  and
        inventories.  The note bears interest at a rate of 10% per annum and was
        payable on or before  November  15,  1996.  The balance of this note was
        $210,283 at December 31, 1996. On December 31, 1996, the Company was not
        in compliance with the terms of the subject loan agreement. However, the
        lender involved has amended the agreement to permit the Company to be in
        compliance  with such terms at December 31, 1996. In February  1997, the
        Company  issued a  promissory  note in the amount of $20,000 in exchange
        for a like amount of trade payables. In April 1997, the lender agreed to
        extend the due date of such notes to the  earlier of June 1, 1997 or the
        closing  of the  Company's  initial  public  offering.  In the event the
        Company  completes  its initial  public  offering  by June 1, 1997,  the
        lender agreed to extend the due date of the then outstanding  $96,000 of
        principal to December 31, 1998.  If such amount is extended,  the lender
        has the right to convert such amount into 32,000 shares of the Company's
        common stock at any time prior to maturity.  The lender agreed to extend
        the maturity date of the promissory notes originally due on June 1, 1997
        to July 31, 1997. At December 31, 1997,  $96,000 of the convertible note
        plus accrued interest of $3,794 remain unpaid.

        <PAGE>


                              MIKE'S ORIGINAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


        NOTE  8  - NOTES PAYABLE (Continued):

        In  December  1996,   the  Company  issued  two  additional   short-term
        promissory   notes  in  exchange  for  certain  trade  accounts  payable
        aggregating  $56,680.  One promissory note bears interest at the rate of
        10% per annum.  Principal  and interest are payable in  installments  as
        follows: the sum of $500, or more,  semimonthly beginning on December 5,
        1996,  and  payable  thereafter  on the 20th and 5th day of each  month,
        until  principal  and  interest  have  been  paid in  full.  The  second
        promissory  note bears interest at the rate of 8% per annum.  Payment of
        principal  will be made at the rate of $5,000  per month  commencing  on
        January 1, 1997 and monthly, thereafter until the earlier of: (i) May 1,
        1997 or (ii) the date the Company  successfully  consummates  an initial
        public offering of its securities,  at which time this note will be paid
        in full  with  interest.  The  balance  of these  notes was  $55,680  at
        December  31,  1996.  The Company has fully paid these notes  during the
        year ended December 31, 1997.

        In December 1996, the Company  issued a $225,000  promissory  note to an
        investor  bearing  interest  at the rate of 8% per  annum.  This note is
        payable in full the earlier of: (i)  December 31, 1997 or (ii) five days
        after  the  closing  date  of an  initial  public  offering.  In lieu of
        receiving payment, the investor has the right to convert this promissory
        note  within five days of the closing of such  initial  public  offering
        into 200,000 shares of common stock of the Company,  par value $.001 per
        share.  Imputed  interest  resulting  from the  difference  between  the
        estimated  fair value of the Company's  common stock and the  conversion
        price has been  provided  for and was  charged  to  operations  over the
        period this note first became convertible.  Interest expense of $360,000
        was  recognized  by the Company  during the three months ended March 31,
        1997,  which  represented  the  amortization  of  the  imputed  interest
        associated with this transaction. In April 1997, the investor elected to
        convert this note.

        In January 1997, the Company issued a convertible  promissory note to an
        investor  bearing interest at the rate of 8% per annum, in the principal
        amount  of  $100,000.  This  convertible  note is to be paid in full the
        earlier of five days after the closing of an initial public  offering or
        January 31, 1998.  In April 1997,  the investor  converted the note into
        78,431  shares  of the  Company's  common  stock.  Interest  expense  of
        $252,940 representing the difference between the estimated fair value of
        the  Company's  common  stock and the  conversion  price was  recognized
        during the three months ended March 31, 1997.

        <PAGE>


                              MIKE'S ORIGINAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


        NOTE  8 - NOTES PAYABLE (Continued):

        In March  1997,  the  Company  issued a  $50,000  promissory  note to an
        investor  bearing  interest  at the rate of 10% per annum.  This note is
        payable on demand on or after May 12, 1997. As additional  consideration
        for this loan,  the Company issued the lender 2,000 shares of its common
        stock.  These shares were valued at $4.50 per share,  the estimated fair
        market value of the stock at the date of issuance. On April 3, 1997, the
        lender  converted  $25,000 of the  outstanding  note balance into 12,500
        shares of the  Company's  common  stock.  An interest  charge of $31,000
        representing  the  difference  between the  estimated  fair value of the
        Company's  common  stock  and the value the  Company  ascribed  to these
        shares  on the date of  issuance  was  recognized  by the  Company  upon
        conversion.  In June 1997, the lender agreed to extend the maturity date
        of the  outstanding  note balance to the earlier of July 31, 1997 or the
        completion of the Company's initial public offering. This note was fully
        repaid in August 1997,  together  with  interest  accrued to the date of
        payment.

        In May 1997, the Company  negotiated  with a creditor in connection with
        trade  accounts  payable  balances  owed  to this  creditor  aggregating
        $60,000.  The creditor  agreed that the Company  would repay  $30,000 of
        this balance upon completion of an initial public offering.  The Company
        issued  a  convertible  promissory  note for the  remaining  outstanding
        balance of $30,000  bearing  interest at the rate of 10% per annum.  The
        note is payable  in full on  December  31,  1998.  In lieu of  receiving
        payment,  the creditor has the right to convert this promissory note, at
        any time prior to the maturity date,  into 10,000 shares of common stock
        of the Company.

        In May and June 1997,  the  Company  issued  three  promissory  notes to
        investors bearing interest at the rate of 12% per annum in the aggregate
        principal  amount  of  $150,000.  These  notes are  payable  in full the
        earlier of: (i) July 31,  1997 or (ii) on the date of an initial  public
        offering.  In connection with these transactions,  the Company issued an
        aggregate of 75,000 warrants, expiring July 31, 2000, to these investors
        to purchase  75,000 shares of the  Company's  common stock at a price of
        $3.00 per share. These notes were paid in full in August 1997,  together
        with interest accrued to the date of payment.


        NOTE  9 - INCOME TAXES:

        A  reconciliation  between  actual  income tax  (benefit) and the amount
        computed by applying the statutory  Federal  income tax rate to the loss
        before taxes is as follows:

        <TABLE>
        <CAPTION>
  
                                                      1997           1996
                                                      ----           ----
        <S>                                       <C>          <C>
        Tax expense (benefit) at statutory 
          Federal income tax                      $(1,532,000)  $(1,377,000)
        Nondeductible compensation                    450,000       128,000
        Net operating loss not currently 
          utilizable                                1,082,000     1,249,000
                                                  -----------   -----------
                                                  $      -      $      -
                                                  ===========   ===========
        </TABLE>


        <PAGE>


                              MIKE'S ORIGINAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


        NOTE  9 - INCOME TAXES (Continued):

        The tax effects of temporary  differences and loss carryforwards  giving
        rise to deferred tax assets and liabilities are as follows:
        <TABLE>
        <CAPTION>

                                                          1997          1996
                                                          ----          ---- 
        <S>                                          <C>            <C>        
        Net operating loss and other carryforwards   $ 2,890,000    $ 1,814,000
        Bad debts                                          5,000          7,000
        Depreciation/amortization                          1,000          2,000
        Deferred compensation                            276,000        276,000
        Other deferred assets                               -            20,000
                                                      ----------     ----------
                                                       3,172,000      2,119,000
        Valuation allowance                           (3,172,000)    (2,119,000)
                                                     -----------    -----------         
                                                     $     -        $      -
                                                     ===========    ===========
        </TABLE>


        The Company anticipates that for the foreseeable future it will continue
        to be required to provide a 100% valuation allowance for the tax benefit
        of its net operating loss carryforward and temporary  differences as the
        Company  cannot  presently  predict  when  it will  generate  sufficient
        taxable income to utilize such deferred tax assets.

        At  December  31,  1997  and  1996,  Company  had net  operating  losses
        available to carry forward of  approximately  $8,500,000  and $5,320,000
        respectively,  for tax purposes.  Such net operating loss  carryforwards
        expire  through the year ending 2013.  No benefit has been  recorded for
        such  loss  carryforwards  since  realization  cannot  be  assured.  The
        Company's use of its net operating loss  carryforwards is limited as the
        Company is deemed to have  undergone an  ownership  change as defined in
        Internal Revenue Code Section 382.


        NOTE  10 - STOCKHOLDERS' EQUITY:

        In September 1995, pursuant to a Shareholders' Agreement and associated
        Escrow Agreement, a shareholder of the Company placed 88,513 shares of
        his common stock in an escrow account.  The Escrow Agreement was    
        terminated in February 1996 and the subject shares were returned to the
        shareholder.  Compensation expense of $265,000 was recognized based upon
        the estimated fair value of the shares by the Company upon the release
        of the shares from escrow. 
  
        On May 30, 1996, the Board of Directors authorized a reverse stock split
        in the ratio of one  common  share for  every  six and  one-half  common
        shares outstanding as of that date. In addition, on such date, the Board
        of  Directors  approved an  amendment to the  Company's  Certificate  of
        Incorporation   increasing  the  number  of  authorized  shares  of  the
        Company's common stock from 3,076,923 to 20,000,000  shares. On February
        6, 1997, the Board of Directors  authorized a reverse stock split in the
        ratio of two common shares for every three common shares  outstanding as
        of  February  7, 1997.  The  reverse  splits and  changes in  authorized
        capital have been retroactively reflected for all periods presented.

        <PAGE>


                              MIKE'S ORIGINAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


        NOTE 10 - STOCKHOLDERS' EQUITY (Continued):

        In May 1996,  the Company  issued  50,000  shares of its common stock to
        certain  individuals  for  services  rendered on behalf of the  Company.
        These shares were valued at $3.00 per share, the estimated fair value of
        the stock at the date of issuance and accordingly,  $150,000 was charged
        to operations.

        During June 1996 through September 1996, the Company completed a Private
        Placement  Offering  pursuant to Rule 506 of the  Securities Act of 1933
        consisting of the sale of 61.5 units (the "Second  Private  Placement").
        Each unit consisted of a $2,500,  12%  subordinated  promissory note and
        7,500 shares of common  stock at an offering  price of $25,000 per unit.
        The note  balance at December 31, 1996 which  resulted  from this Second
        Private  Placement was  $153,750.  These notes mature on the earlier of:
        (i) July  31,  1997,  or (ii) the  closing  date of the  initial  public
        offering.  Accrued  interest  payable related to these notes amounted to
        $7,688 at December 31, 1996.  In April 1997,  $30,000 of such notes,  as
        well as $2,100 of accrued  interest,  were converted to 16,050 shares of
        the Company's  common stock.  The balance was repaid upon the successful
        completion of the Company's IPO in July 1997.

        In September 1996, the founder of the Company  transferred 33,333 shares
        of his common  stock to certain  individuals  for  services  rendered on
        behalf of the Company.  These shares were valued at $3.00 per share, the
        estimated  fair value of the stock at the date of the  transfer.  As the
        Company  implicitly  benefitted from this transaction,  the value of the
        shares  transferred  was  reflected  as an expense  in the  accompanying
        financial   statements  with  a  corresponding  credit  of  $100,000  to
        additional paid-in capital.

        In October 1996, the Company issued 19,231 shares of its common stock to
        certain individuals for services rendered during the year ended December
        31,  1996.  These shares were valued at $3.00 per share,  the  estimated
        fair market value of the stock at the date of issuance,  and $57,692 was
        charged to operations.

        In March 1997,  the Company in connection  with entering into a two-year
        exclusive East coast  manufacturing  agreement,  issued 35,000 shares of
        its common  stock.  These  shares  were  valued at $4.50 per share,  the
        estimated  fair  market  value of the  stock  at the  date of  issuance.
        Pursuant to the agreement,  the manufacturer  agreed to provide $250,000
        of 21-day  credit terms.  Further,  the Company was obligated to pay the
        manufacturer  $150,000  against existing amounts owed by April 30, 1997.
        In the event such amount was not paid, the Company is obligated to issue
        an  additional  30,000  shares of its common stock to the  manufacturer.
        These additional shares were issued to the manufacturer in May 1997.

        In May 1997,  the Company  issued  100,000 shares of its common stock to
        its legal counsel for services  rendered during March and April of 1997.
        These shares were valued at $4.50 per share, the estimated fair value of
        the stock at the date of issuance and, accordingly, $450,000 was charged
        to operations during the  year ended December 31, 1997.

        <PAGE>


                              MIKE'S ORIGINAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996



        NOTE 10 - STOCKHOLDERS' EQUITY (Continued):

        In June 1997,  the Company  issued  13,307 shares of its common stock to
        certain  individuals in settlement of amounts owed to these  individuals
        aggregating  $39,921.  An interest  charge of $19,961  representing  the
        difference  between the  estimated  fair value of the  Company's  common
        stock and the value the Company  ascribed to these shares on the date of
        issuance was  recognized  by the Company in the year ended  December 31,
        1997.

        On July 31, 1997.  the Company  completed  its Initial  Public  Offering
        ("IPO") of 700,000 units sold to investors on the OTC Bulletin  Board at
        $6.20 per unit for aggregate  gross  proceeds of  $4,340,000.  Each unit
        contained one share of common stock and two Class A warrants to purchase
        one share of Common Stock each at $5.00 per share.  The Company realized
        net proceeds of $3,342,444.

        In August  1997,  the Company  issued  35,500  shares of common stock as
        compensation for professional fees rendered aggregating $206,250.

        See also Notes 8 and 13c for additional share issuances.


        NOTE 11 - STOCK OPTION PLANS:

        At December 31, 1997 the Company has two stock-based compensation plans,
        which  are  described   below.  The  Company  applies  APB  Opinion  25,
        "Accounting  for Stock Issued to Employees" and related  interpretations
        in accounting for stock options issued to employees. The Company applies
        Statement of Financial  Accounting  Standards  No. 123 ("SFAS No. 123"),
        "Accounting  for Stock- Based  Compensation",  in  accounting  for stock
        options issued to  non-employees.  The  compensation  cost that has been
        charged  against  income for stock options issued to  non-employees  was
        $812,000 for the year ended  December 31, 1996.  No options were granted
        under this plan during 1997.

        Had  compensation  cost for employees been determined  based on the fair
        value at the grant dates  consistent  with the  methodology  of SFAS No.
        123,  the  Company's  net loss and net loss per  share  would  have been
        increased to the pro forma amounts indicated:

        <TABLE>
        <CAPTION>

                                                   Year Ended December 31,
                                                 1997                 1996
                                                 ----                 ----
        <S>                                   <C>                <C> 
            Net loss:
               As reported                    $(4,502,645)        $(4,050,547)
               Pro forma                       (4,732,943)         (4,581,047)
            Net loss per share:
               As reported                         $(1.69)             $(2.54)
               Pro forma                            (1.78)              (2.88)
        </TABLE> 

        <PAGE>


                              MIKE'S ORIGINAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


        NOTE 11 - STOCK OPTION PLANS (Continued):

        In August 1995, the Company formally adopted a Long-Term  Incentive Plan
        (the "1995 Plan"), which provides that the Company may grant certain key
        employees  or  consultants  either  stock  options,  stock  appreciation
        rights, restricted stock, performance grants or other Company securities
        (the "Awards"). The 1995 Plan, as amended,  authorizes the issuance of a
        maximum of 433,333  shares of common stock.  As of December 31, 1997 and
        1996, respectively,  the Company has granted an aggregate of 306,667 and
        256,667  options to purchase  common stock with exercise  prices ranging
        from $1.50 to $3.00  under this Plan.  At  December  31,  1997 and 1996,
        options   exercisable   under  this  plan  were   306,667   and  33,333,
        respectively.  None of these options have been exercised to date. During
        the year ended December 31, 1996, compensation cost recognized in income
        for the issuance of options under the 1995 Plan to non-employees totaled
        $119,000.  To date,  options granted under this plan are exercisable six
        months from date of grant and expire 10 years from date of grant.

        On October 15, 1996,  the Company's  Board of Directors  approved a 1996
        Non-qualified  Stock Option Plan  ("Non-qualified  Plan") for  officers,
        directors,  employees  and  consultants  of the  Company.  The Plan,  as
        amended,  authorizes  the  issuance  of up to  500,000  shares of common
        stock.  As of December 31, 1997, the Company has granted 478,332 options
        to purchase  shares of common stock under the  Non-qualified  Plan at an
        exercise  price of $1.50.  None of the stock  options  granted have been
        exercised to date. During the year ended December 31, 1996, compensation
        cost recognized for the issuance of options under the Non-qualified Plan
        to non-employees  totaled $693,000.  To date, options granted under this
        plan are  exercisable  six months from date of grant and expire 10 years
        from date of grant.

        A summary of stock option activity  related to the Company's Plans is as
        follows:

        <TABLE>
        <CAPTION>
                                                                      Weighted
                                                                      Average           1996
                                                1995 Plan             Exercise     Non-qualified Plan
                                          Shares     Price Range      Price        Shares   Price Range
                                          ------     -----------      ---------    ------   -----------

        <S>                               <C>        <C>               <C>         <C>        <C>                            
        Outstanding at January 1, 1996       -                                        -
        Granted during 1996               256,667    $1.50 - $3.00     $1.69       396,666     $1.50
                                          -------                                  ------- 
        Outstanding at December 31, 1996  256,667    $1.50 - $3.00      1.69       396,666      1.50
        Granted during 1997                50,000     1.50              1.50        81,666      1.50
                                          -------                                  -------       

        Outstanding at December 31, 1997  306,667     1.66                         478,332      1.50
                                          =======                                  =======                    

        Exercisable at December 31, 1996  256,667     1.50 - 3.00       1.69          -
                                          =======                                  =======  

        Exercisable at December 31, 1997  306,667     1.50 - 3.00       1.69       478,332      1.50
                                          =======                                  =======     
        </TABLE>

        <PAGE>


                              MIKE'S ORIGINAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


        NOTE 12  - FAIR VALUE OF FINANCIAL INSTRUMENTS AND  CONCENTRATION OF
                   CREDIT RISK:

        The carrying amounts of cash, accounts receivable,  accounts payable and
        other accrued liabilities are estimated to approximate their fair value.
        The Company believes that it is not practicable to estimate the value of
        its debt obligations due to its current financial condition.

        Concentration  of credit risk with respect to trade accounts  receivable
        exists as the Company sells products  primarily to one distributor.  The
        Company performs periodic credit evaluations of its customers' financial
        condition  and does  not  require  collateral  or  other  security.  The
        distributor  referred to in Note 3e accounted for  approximately 91% and
        79% of the  Company's  sales for the years ended  December  31, 1997 and
        1996, respectively.  This distributor accounted for 57% of the Company's
        net accounts  receivable  at December 31, 1996. As of December 31, 1997,
        the Company no longer sells to this distributor and there are no amounts
        uncollected.

        The  Company's   products  have   historically   been   manufactured  by
        independent   facilities.   Certain  of  these  facilities  have  ceased
        manufacturing  on  behalf  of the  Company  due to the fact  that  these
        facilities  are owed  substantial  sums of money by the  Company and the
        Company's products are currently  manufactured at only one facility.  If
        this  manufacturer  elects to suspend the manufacturing of the Company's
        products, the Company's operating results may be adversely affected.


        NOTE  13 - COMMITMENTS AND CONTINGENCIES:

        (a)  Lease Commitments:

        Future minimum payments under noncancellable operating leases for office
        space, equipment and vehicles,  with initial terms of one or more years,
        consist of the following at December 31, 1997:

        <TABLE>
        <CAPTION>

                                          Operating
                                           Leases
                                          ----------

               <S>                         <C> 
               1998                        $15,836
               1999                         11,025
               2000                          2,023
                                           -------  
                                           $28,884
                                           =======  
        </TABLE>

        <PAGE>


                              MIKE'S ORIGINAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


        NOTE  13  -    COMMITMENTS AND CONTINGENCIES (Continued):

        (b)  Employment Contracts:

        The Company had an employment  agreement with its former President which
        provided  for an annual  base salary and  bonuses.  The  agreement  also
        provided for the granting of 5,101 of immediately  exercisable and fully
        vested  options to purchase  shares of the Company's  common stock at an
        exercise price of $3.00.  This agreement was to expire in February 1999.
        In addition,  the former President was granted an incentive stock option
        to purchase  73,205 shares of the Company's  common stock at an exercise
        price of $3.00  which  vested  ratably  over the three  years  beginning
        February 1995. On September 15, 1996,  the then  President  resigned his
        employment  with the  Company.  At the time of the  resignation,  29,530
        options to purchase  shares of the  Company's  common stock at an option
        price of $3.00 per share were  exercisable and the balance was canceled.
        The exercisable  options expired on December 15, 1996, three months from
        the date of the then President's resignation.

        During  the year ended  December  31,  1996,  the  Company  hired a Vice
        President  of  Sales  and  Marketing  and  entered  into  an  employment
        agreement  with this  individual.  The agreement  provided for an annual
        base salary of $100,000, plus an incentive bonus. This agreement was for
        an initial term of one year from the earlier of the effective date of an
        initial public offering of the Company's securities or March 1, 1997. On
        June 20, 1997,  this employee  resigned his employment with the Company.
        At the time of the resignation, 66,667 options to purchase shares of the
        Company's common stock at an option price of $1.50 were canceled.

        In addition,  the Company has employment agreements with the founder and
        another  employee which provide for annual base salaries of $125,000 and
        $40,000,  respectively,  and expire,  as amended,  in June 2001 and June
        1998,  respectively.  During the year ended  December  31,  1996,  these
        individuals  voluntarily  waived  all  rights  to  receive  the  accrued
        salaries payable to them  aggregating  $110,565 and,  accordingly,  such
        amount has been presented as a contribution to the Company's  additional
        paid-in capital.  Further, in April 1997, the founder agreed to waive an
        additional  $27,333 of accrued  salary  through  February 28,  1997.  In
        December 1997 the employee whose contract  expires in June 1998,  agreed
        to modify the agreement and be  compensated  on an hourly basis which is
        anticipated to produce substantially lower compensation. All other terms
        of the  contract  remain in  effect.  The  agreement  with the  founder,
        currently  serving  as the  Chairman  of the Board  and Chief  Executive
        Officer,  provides for bonuses based on the Company's pretax income, and
        also includes non-compete and change of control clauses.

        In March 1997, the Company entered into a two-year employment  agreement
        with its Vice-  President - Finance  which  provided  for an annual base
        salary of $95,000 for the first year and  $105,000  for the second year.
        In November 1997, this employee  resigned,  however remained as a member
        of the Board of Directors.

        <PAGE>


                              MIKE'S ORIGINAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


        NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued):

        (b)  Employment Contracts (continued):

        On July 16, 1997, the Company entered into an employment  agreement with
        its Vice-President  Marketing. The agreement provides for an annual base
        salary of $115,000,  plus an incentive  bonus.  This agreement is for an
        initial term of one year from the effective  date of the initial  public
        offering of the Company's  securities.  Options were granted to purchase
        66,667  shares of the  Company's  common  stock at an exercise  price of
        $1.50 per  share.  The  Company  is  responsible  for up to  $25,000  of
        expenses  related to the  employee  traveling to and from  Buffalo,  NY,
        temporary  living and other such amounts  necessary  for the employee to
        devote his full time  employment  to the  Company.  The  agreement  also
        provides for an automobile allowance of $650 per month.

        (c)  Consulting Agreements:

        On March 1, 1994, the Company  entered into a consulting  agreement with
        an investor (the "Investor"), whereby the Company shall pay the Investor
        $75,000 for the first year ended March 31, 1995, $100,000 for the second
        year and  $125,000  for the third  year.  The Company  recorded  accrued
        consulting  expense of $89,585  during the year ended December 31, 1996.
        In  September  1996,  this  investor  voluntarily  waived  all rights to
        receive the consulting fee payable to him and accordingly, the aggregate
        amount  waived,  $247,917  has  been  reflected  as  a  contribution  to
        additional paid-in capital.

        In November  1996,  this  consulting  agreement was  superseded by a new
        agreement.  The new agreement  provides that beginning  January 1, 1997,
        the  Company  will pay  consulting  fees to the  Investor at the rate of
        $125,000 per annum for a three-year period.  However,  no monies will be
        paid to this Investor until such time as the Company shall  consummate a
        private  or  public  offering  of  its  securities  for  not  less  than
        $2,000,000 in gross proceeds.

        In April 1997,  the November 1996  consulting  agreement was  terminated
        and, in consideration for such  termination,  the Company issued 150,000
        shares of its common stock to the consultant. At March 31, 1997, accrued
        compensation  payable  to  this  consultant   aggregated   approximately
        $31,000.  In April 1997 the Company recognized a charge to operations of
        approximately $644,000 based upon the estimated fair market value of the
        shares issued to the consultant.

        During the year ended  December  31,  1996,  the Company  entered into a
        consulting  agreement  with  an  entity  that  will  provide  sales  and
        marketing advisory and consulting  services to the Company.  This entity
        will  receive  30,000  shares of common  stock (see Note 14),  an annual
        consulting fee of $50,000 and has received  options to purchase  133,333
        shares of the Company's common stock at $1.50 per share expiring October
        15, 2006.  One third of such options  become  exercisable  at the end of
        each  successive  six-month  period.  At December 31,  1997,  options to
        purchase 88,889 common shares were exercisable.

        (d) Line of Credit:

        In December 1995,  the Company  obtained an unsecured line of credit for
        $25,000.  Borrowings  under  this line bear  interest  at 15% per annum.
        Borrowings  outstanding  under this line at December  31, 1997 and 1996,
        were $9,374 and $23,506, respectively.
        <PAGE>

                              MIKE'S ORIGINAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


        NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued):

        (e)  Legal Proceedings:

        The  Company  is  subject  to  various  legal  proceedings,  claims  and
        liabilities  which arise in the ordinary course of its business.  In the
        opinion of management,  the amount of any additional liability in excess
        of amounts already provided for with respect to these actions,  will not
        have a material  adverse effect on the Company's  results of operations,
        cash flow or financial  position.  As of December 31, 1997,  the Company
        has provided for  approximately  $130,000 in connection with known legal
        proceedings and claims.

        (f)  Acquisitions:

        On December 18, 1997, the Company  entered into two agreements  (letters
        of intent) to acquire companies engaged in the full service distribution
        of ice cream in the New York Metropolitan area, through its wholly-owned
        subsidiary,  New York Frozen  Desserts,  Inc.  In  exchange  for all the
        assets of New Yorker Ice Cream Corp.,  the Company will pay (i) $465,000
        at closing, (ii) $800,000 over three years with interest at 8% per annum
        and (iii)  will  assume  an  existing  obligation  of  $735,000,  paying
        $200,000 at closing,  and the  remaining  $535,000  over four years with
        interest at 8% per annum.  In exchange for all the assets of Jerry's Ice
        Cream Co., Inc., the Company will pay $245,000 at closing,  and $220,000
        over three years with interest at 8% per annum.

        In  connection  with these  acquisitions,  the Company  entered  into an
        agreement with a company whose shareholders consist of an investor and a
        Director of the Company.  The  agreement  provides for a finder's fee in
        the amount of $200,000 and 200,000 shares of the Company's  common stock
        together  with piggy back  registration  rights to be  delivered  at the
        closing of the above transactions. All future acquisitions introduced by
        this company,  will involve  similar fee  arrangements  to be negotiated
        prior to the closing of each transaction.

        (g)  Government Regulation:

        The Company is subject to  regulation by various  governmental  agencies
        regarding the distribution and sale of food products,  including the FDA
        and various state agencies.  The Company believes that its marketing and
        distributing  operations  comply with all existing  applicable  laws and
        regulations.

        (h)  Insurance:

        The  Company's  business  exposes  it to  potential  liability  which is
        inherent in the marketing and distribution of food products. The Company
        currently  maintains  $2,000,000  of product  liability  insurance.  The
        Company  also  maintains  $1,000,000  of  general  and  personal  injury
        insurance per occurrence and $5,000,000 in the aggregate. If any product
        liability  claim is made and  sustained  against  the Company and is not
        covered by insurance, the Company's business and prospects could be 
        materially adversely affected.

        <PAGE>


                              MIKE'S ORIGINAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


        NOTE 14 - SUBSEQUENT EVENTS:

        On February  6, 1998,  the Company  issued  30,000  shares of its common
        stock to a consultant in exchange for 1998 services. These shares are in
        addition  to a monthly  fee that the Company has the option of paying in
        either  cash  or the  Company's  common  stock.  These  shares,  and any
        subsequently  issued shares,  bear a restrictive legend pursuant to Rule
        144 governing such securities. See Note 13c.

        On February 15, 1998, the Company signed a lease for a three-month term,
        renewable  monthly,  for new office space in Rye, New York.  This office
        will serve as the corporate office of the Company until such time as the
        Company and the planned  acquisitions can be relocated to an appropriate
        facility.  The lease in Jericho, New York expired without any additional
        costs.

        On March 4, 1998,  the  Company,  through its  wholly-owned  subsidiary,
        signed a license  agreement  to sell and  distribute  frozen  juice bars
        under the name of a nationally  known licensor.  This agreement is for a
        limited territory in the eastern part of the country and for a period of
        two years.  The  Company has the option to obtain two  sub-licensees  to
        operate under the main agreement on behalf of the Company.