<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C.  20549

                                    FORM 10-K

[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act
    of 1934
                                 (FEE REQUIRED)

                   For the fiscal year ended March 31, 1997 or

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934
                                (NO FEE REQUIRED)

                   For the transition period from:         to

                        Commission file number:  1-12932

                               JAVA CENTRALE, INC.
                              --------------------
            (Exact number of Registrant as specified in its charter)

                    California                              68-0268780
          -------------------------------               ------------------
          (State or other jurisdiction of                  (IRS Employer
          incorporation or organization)                Identification No.

 1610 Arden Way, Suite 145, Sacramento, California             95815
 -------------------------------------------------          ----------
     (Address of principal executive officers)              (Zip Code)

       Registrant's telephone number, including area code:  (916) 568-2310

        Securities registered pursuant to Section 12(b) of the Act:  None

  Securities registered pursuant to Section 12(g) of the Act:  Common Stock, no
par value

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed under Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days. Yes  X   No
                                       ---     ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   [X]

The aggregate market value of the Registrant's common stock held by non-
affiliates as of June 30, 1997(based on the closing sale price of the Common
Stock on the National Association of Securities Dealers Automated Quotation
System) was $3,173,256.

     As of June 30, 1997 there were outstanding 15,599,015 shares of the
Registrant's Common Stock.



<PAGE>

                                TABLE OF CONTENTS


                                                                          Page
                                     PART I                               ----

Item 1.     Description of Business                                         3
Item 2.     Description of Property                                        21
Item 3.     Legal Proceedings                                              22
Item 4.     Submission of Matters to a Vote of Securities Holders          23


                                     PART II

Item 5.     Market for the Company's Common Equity
              and Related Stockholder Matters                              24
Item 6.     Selected Financial Data                                        25
Item 7.     Management's Discussion and Analysis of
              Financial Condition and Results of Operations                26
Item 8.     Financial Statements and Supplementary Data                    36
Item 9.       Changes in and Disagreements with Accountants
               on Accounting and Financial Disclosure                      64


                                    PART III

Item 10.    Directors and Executive Officers of the Registrant             64
Item 11.    Executive Compensation                                         67
Item 12.    Security Ownership of Certain Beneficial Owners and
             Management                                                    71
Item 13.    Certain Relationships and Related Transactions                 75


                                     PART IV

Item 14.    Exhibits, Financial Statement Schedules, and Reports on
             Form 8-K                                                      77


                                        2
<PAGE>

                                     PART I

Item 1.   DESCRIPTION OF BUSINESS

     (a)  GENERAL DEVELOPMENT OF BUSINESS.

     Java Centrale, Inc., a California corporation (the "Company"), began
operations on March 5, 1992, and operated as a development stage enterprise
through the end of its fiscal year ended March 31, 1993, and commenced principal
operations as of April 1, 1993, at which time it had operating two franchised
cafes. At March 31, 1996, the Company was operating 36 Company-owned cafes, four
Company-owned carts, 53 franchisee-owned cafes, eight franchisee-owned carts,
and had an additional 89 signed agreements for as-yet-unopened franchisee-owned
cafes.

     At March 31, 1997, the Company was operating 17 Company-owned cafes, 55
franchisee-owned cafes, eight franchisee-owned carts, and had an additional 36
signed agreements for as-yet-unopened franchisee-owned cafes.  During the year
ended March 31, 1997, 11 Franchise Agreements have been terminated and refunded
by the Company prior to the opening of the cafe primarily as a result of the
franchisee's  inability to select an acceptable location in a timely manner. The
Company terminated three Franchise Agreements due to the transfer of ownership
to three new franchisees.  The Company had nine franchisee-owned cafes close and
three Company-owned cafes and one Company-owned cart close in fiscal year ended
March 31, 1997 due to lack of financial and operational performance. The Company
also discontinued the franchising of carts and will allow the current
franchisees to operate the existing eight carts in the California locations.

     ACQUISITIONS AND JOINT VENTURES

     On November 14, 1994, the Company entered into a ten-year Joint Venture
Formation Agreement with Banyan Capital, Limited Partnership, a Delaware Limited
Partnership, Java Southeast Partners, L.P., a Delaware limited partnership
("CoffeeCo"), and Java Southeast, Inc., a Delaware corporation (the "Joint
Venture"), for the development of a minimum of 50 cafes in the State of Florida
over a five-year period, and for rights to other markets on the Eastern
Seaboard.  Under the terms of the agreement, the Company expected to contribute
up to 227,983 shares of its newly issued Common Stock to the Joint Venture, in
exchange for up to 18.3% of the Joint Venture's outstanding shares. All Company
shares that were issued as part of this transaction would be subject to various
restrictions on transfer.  In exchange for a per cafe fee and an ongoing
management fee, the Joint Venture obtained an exclusive license for the Florida
market. The Company and Coffee Co completed the initial phase of the Joint
Venture in July 1995 and the


                                        3
<PAGE>

Company contributed 89,428 common shares and expected to contribute the
remaining shares prior to the end of the agreement.  The Joint Venture had
opened three cafes as of March 31, 1997.  The Company advanced $200,000 to the
Joint Venture in December 1995, and an additional $27,500 in June 1996. The
Company received $6,145 in royalties through April of 1996, and $155,000 of the
area development fee as of June 30, 1996.  No additional fees were received
since June of 1996.

     In March 1997, the Company, Banyan Capital, CoffeeCo, and the Joint Venture
mutually agreed to terminate the Company's participation in the Joint Venture
agreement pursuant to a settlement agreement under which:  (a)  the Company
exchanged its shares in the Joint Venture for the return of the 89,428 shares it
contributed to the Joint Venture, (b)  the Company converted its $200,000 note
from the Joint Venture into additional shares in the Joint Venture, which it
retained, (c)  the Company reaquired its development rights for the State of
Florida and all other markets originally granted to the Joint Venture, and (d)
the Joint Venture retained ownership of the three cafes it had opened.  The
Company recorded a net loss of $256,865 on the termination of the Joint Venture
agreement.

     On March 30, 1995, the Company completed its acquisition of substantially
all of the assets of Oh La La!, Inc., a Delaware corporation headquartered in
Northern California.  At the time of this transaction, Oh La La! was the Debtor-
in-Possession in a Chapter 11 bankruptcy proceeding.  The assets purchased
included tenant improvements, equipment, and goodwill.  The purchase price for
the acquired assets were $2,104,000 and liabilities in the amount of $113,000
were assumed as part of the transaction.

     In December of 1996 the Company sold the assets of Oh La La! to Good 
Food Fast Companies, Inc. "GFF" for $1,250,000 in cash, 233,333 shares of 
preferred stock and $750,000 in notes receivable due in 1999. On March 31, 
1997 the Company agreed with GFF to exchange $250,000 of the convertible note 
receivable for the assumption of certain liabilities of the Company, exchange 
233,333 preferred shares for 233,333 shares of common stock, accelerate a 
payment of $145,000 due under the note receivable to May 1997 and converted 
the remaining $355,000 balance of the note into 40,000 shares of GFF common 
stock. The common shares of GFF at March 31, 1997, have been valued at $2.00 
per share based on the fair value of such shares.  The Company recognized an 
aggregate loss of $304,638 from the sale of Oh La La! and the subsequent 
conversion of the note receivable into common shares.  As of March 31, 1997, 
following the related conversions, the Company owned approximately 30% of the 
outstanding common shares of GFF.  The Company did not recognize any earnings 
from GFF under the equity method of accounting due to immateriality.

     On December 31, 1995, the Company acquired 100% of the outstanding shares
of Paradise Bakery, Inc., for $5,375,000 cash and $1,350,000 notes payable of
which $385,000 represented an amount due from Founders Venture, Inc. prior to
the Founders Venture merger.  Paradise Bakery, Inc., operates seven Company-
owned bakery/cafes and 44 franchisee-owned bakery/cafes.

     On January 17, 1996, the Company merged into Paradise Bakery, Inc., 100% of
the outstanding shares of Founder Ventures, Inc., for 431,853 common shares of
the Company.  Founder Venture, Inc., operated eight franchisee-owned Paradise
bakery/cafes prior to the merger.

     On January 17, 1996, the Company acquired certain assets of Venture 88,
Inc., for 74,073 shares of the Company and $153,929 assumption of liabilities
and issued $46,071 in notes payable.  The assets acquired were for three
franchisee-owned Paradise bakery & cafes prior to the acquisition.


                                        4
<PAGE>

     The Company's revenues are currently derived primarily from Company-owned
facilities, initial franchise fees, franchise royalties and product overrides on
sales to its franchisees.  Franchise fees range from $15,000 to $35,000 per
cafe.  The Company is entitled to 4-6% of the gross receipts from each
franchised cafe and 2-10% of the gross receipts from each franchised cart.
Product overrides amount to 10% of the total purchases by its franchisees of
coffee from the Company's contract roaster.

     FINANCIAL STATUS OF THE COMPANY

     The Company has never earned a profit in any fiscal year.  Since its 
incorporation in 1992, the Company's operations have required (rather than 
provided) cash every year.  In order to meet these cash requirements, the 
Company has from time to time sold common stock, borrowed short-term money, 
sold company assets and issued convertible debt.  The Company recorded a loss 
in the development stage during its first fiscal year of operation and since 
principal operations commenced and has recorded a loss for the fiscal years 
ended March 31, 1993, 1994, 1995, 1996 and 1997.  The net loss for fiscal 
1997 was $5,326,192. There can be no assurance that losses will not continue, 
or that the Company as currently constituted will become profitable in the 
future.  As of March 31, 1997, the Company had an accumulated deficit of 
$13,438,422. In the fiscal year ended March 31, 1997, the Company sold 
assets, raised debt and equity, and reduced expenses to meet its ongoing 
liquidity needs.  Currently the Company has a material working capital 
shortfall.

     During fiscal 1997 and to date, the Company has been operating at a loss
primarily due to its administrative overhead and the under performance of the
cafes in its Java Centrale system.  Commencing in April 1996. The Company
instituted a plan to reduce its administrative expenses, but this plan has not
been successful enough to cause the Company to become profitable.  Further, the
Company's Java Centrale system has in general not grown as fast or proved to be
as profitable as expected, and the Company has experienced higher than
anticipated expenses in pursuing the development of these cafes and in the
closing of certain outlets in this system.

     The Company's continuing operating losses have left it in a materially weak
cash-flow position, one effect of which has been that the Company has been
unable to develop its more profitable Paradise Bakery system as rapidly and
extensively as it has planned to do.

     The Company's financing plan over the last year to meet its ongoing
liquidity needs has been to raise new equity through private placements,
refinance or obtain new debt funding and sell assets of the Company's operation.
The Company is maintaining its financing plan of seeking new equity, obtaining
or refinancing debt and pursuing the sale of assets related to the Company's
operation.  In February 1997, the Company hired an outside advisor to assist
with the refinancing of the debt or the raising of new equity and to date there
has been no financing completed. As of June 30, 1997, the Company is in
negotiations with various parties and no certainty can be given as to the
ultimate outcome of these discussions.

     Since April of 1996, the Company has relied on a series of short-term loans
from Alta Petroleum, Inc. in the aggregate amount of $775,000, sale of assets
totaling $1,321,000 and the raising of $900,000 in equity to finance its
continuing cash flow shortfalls.  (See "Certain Transactions," below.)  There
can be no assurance that any similar financing, asset sales or equity


                                        5
<PAGE>

placements will continue to be available to the Company in the future.
Consequently, under current circumstances the Company does not anticipate that
it will be able to continue existing operations in the future unless it can
obtain new short-term or long-term financing, raise new equity or make a
significant sale of assets.  A special committee of the Company's Board of
Directors has been constituted in order to evaluate a number of options for the
resolution of its immediate and long-term financial needs, including among other
potential alternatives the sale of its Java Centrale and/or Paradise Bakery
systems, obtaining a long-term loan secured by its Paradise Bakery assets, a
private and/or public sale of Company stock and/or other securities, and a
strategic merger.  Some of the alternatives currently being studied by the
Company's Board of Directors might result in a change in the management and/or
control of the Company.  However, no final resolution of these issues has yet
been arrived at.

     NASDAQ SMALL CAP LISTING RISKS

     The Company's common stock is currently listed for trading on the NASD
SmallCap Market. The NASD requires listed companies to meet certain corporate
governance and shareholder voting rights standards.  Although the Company and
its common stock currently meet all of the above maintenance criteria and
standards, there can be no assurance that such criteria will continue to be met
in the future.  In addition, the NASD has proposed certain changes in its
listing and maintenance criteria, which the Company may or may not be able to
meet in the future.

     The NASD has published for comment a number of possible changes to its
listing and maintenance criteria for companies quoted on the NASDAQ SmallCap
Market.  If adopted in final form, the proposed changes are currently scheduled
to go into effect during the 4th Quarter of 1997 or 1st quarter of 1998.

     The NASD's current proposal would, among other things, require that the
minimum bid price for any stock quoted on that market would be $1.00; if the
minimum bid price for a listed company's stock should drop below $1.00 for a
material period of time, it would become eligible for delisting from the NASDAQ
SmallCap Market List.  Current NASD rules provide that one or the other (but not
necessarily both) of the following criteria must be met:  either (a) the minimum
bid price for the Company's common stock must be at least $1.00 per share, or
alternatively (b) the aggregate market value of the Company's public float must
be at least $1,000,000 and the Company must have at least $2,000,000 in combined
capital and surplus. The Company believes that it meets the current listing
criteria.  For the entire period between January 1, 1997 and June 30, 1997, the
daily low price bid per share for the company's common stock ranged from a low
of $0.19 to a high of $0.69.  Therefore, if the NASD's current proposals are
adopted without change and the minimum bid prices for the Company's common stock
does not remain above $1.00, the Company may need to consider effectuating a
reverse stock split or taking some other corporate action in order to be
confident of its continuing ability to meet the NASD's new minimum bid
requirements in this respect.

     Another of the criteria currently being proposed by the NASD is that
companies having securities listed on the SmallCap Market maintain at least one
of the following:  either (a) net tangible assets of $2,000,000, or (b) a market
capitalization of $35,000,000, or ( c) annual net income for two of the previous
three years of at least $500,000.   The Company currently does not meet any of
these tests described in the proposed rules.  The Company will need to raise
additional


                                        6
<PAGE>

equity to meet this proposed change.

     In addition, there can be no assurance that the maintenance requirements
ultimately adopted by the NASD will not be stronger, or otherwise different,
than those currently being proposed, or that the Company will be able to meet
any such other criteria if adopted by the NASD.  If the Company is unable to
substantially improve the minimum bid price for its Common Stock or effectuate a
reverse stock split, or meet the minimum net tangible assets of $2,000,000, or
if other criteria are adopted by the NASD which are more restrictive than those
currently proposed, the Company's common stock could ultimately be delisted from
the NASDAQ SmallCap Market List.  In such an event, the trading market for its
Common Stock would immediately become far less liquid that it is at present.


     (b)  FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.

          Not applicable.

     (c)  NARRATIVE DESCRIPTION OF BUSINESS.

          JAVA CENTRALE COFFEE CAFES

     The Company has found it difficult to recruit franchisees for the Java
Centrale system. This difficulty is driven by the lack of sufficient quantities
of suitable sites to grow the system along with the historical performance of
the Java Centrale system.  The lack of inventory of suitable sites is the result
of the demand for similar sites by other specialty coffee and other specialty
food operators.  The Company intends to continue the franchising of the Java
Centrale system despite the highly competitive environment in which Java
Centrale cafes operate.

     Each Java cafe offers over 40 different varieties of whole bean and fresh
ground coffee--made from carefully selected gourmet coffee beans, slowly roasted
and blended to Java's proprietary specifications, and containing 100% class one
Arabica mild high-grown hard beans.  In addition to selling numerous coffees and
other specialty beverages, the cafes also sell coffee-making equipment and
accessories such as brewers, espresso makers, grinders, mugs and carafes.

     The Company's coffee products appeal to the tastes of today's specialty
coffee consumers--who are better educated, more affluent, prefer high quality
and good value, consider gourmet coffee an affordable luxury.

     The Company is one of many regional specialty coffee operators.  Although
the concept has reached a level of recognition in the Los Angeles area the other
Java Centrale cafe locations have been developed on an individual basis in a
number of cities in five other states and are therefore recognized only in their
immediate area.  The overall result is minimal recognition and market share
versus the larger regional and national operators.

     Java Centrale cafes offer convenient and comfortable indoor and outdoor
seating which


                                        7
<PAGE>

encourages the customers to relax and enjoy their visit to the cafe during
business hours, evenings, or on weekends.  This attracts customers into Java
Centrale cafes during various parts of the day when they might not otherwise
frequent the cafe exclusively for coffee.  Although this multi-use philosophy
does differentiate the Java Centrale concept, it is still in direct competition
with any outlet that serves specialty coffee and other operators, in or out of
the coffee segment, who offer similar food items.

     Java Centrale's menu offers a wide selection of coffee beverages and
gourmet complementary food selections, along with take-home whole-bean coffees.
The food menu items are prepared fresh to order and are presented attractively.
The presence of complementary food items gives the consumer multiple reasons to
frequent the cafes.  The availability of whole bean coffees, brewed coffees and
espresso based beverages, breakfast pastries, lunch time sandwiches and salads
along with late night dessert offerings brings the consumer back to the cafe
more often and at times of the day when they might not frequent the cafe if it
offered coffees exclusively.

          PARADISE BAKERY CAFES

     On December 31, 1995, the Company acquired 100% of the outstanding stock of
Paradise Bakery, Inc., a Delaware corporation, operating seven Company-owned and
44 franchisee-owned bakery/cafes.  Additionally, on January 1, 1996, the Company
acquired 10 Paradise Bakery franchisee-owned bakery/cafes in two separate
agreements.  The Company believes that the acquisition of Paradise Bakery will
allow the Company to further enhance the Company's expansion strategy by
franchising and developing Paradise Bakery.

     Paradise Bakery has cafes at 49 locations in Hawaii, California, Arizona,
Oregon, Washington, Colorado, Oklahoma and Texas. Of these, 16 are company-owned
and 33 are franchised. Highly visible sites in upscale markets include the
Phoenix Airport, Scottsdale Fashion Square, Ala Moana Center in Hawaii, and in
the ski resorts of Aspen and Snowmass. Franchisee-owned cafes seek to capture
"prime" high-traffic locations such as shopping mall, airports, and upscale
recreational/tourist areas.

     The Paradise Bakery concept has limited competition in the upscale bakery
cafe market.  The Paradise brand name is well established and synonymous with
quality baked fresh baked goods.

     Freshly baked cookies, muffins and croissants have been the signature
products at Paradise Bakery cafes.  Paradise Bakery also offers brownies,
cinnamon rolls and other bakery goods. All bakery goods are made from scratch,
baked on the premises throughout the day to ensure freshness, and are made from
the highest quality ingredients.  Paradise Bakery cafes also feature freshly
made specialty sandwiches, entree salads, pasta salads, and soups.  A recent
addition to the menu mix is the new "Coffees of Paradise" program which was
instituted after the purchase of Paradise Bakery by the Company.  The products
offered under this new banner are quality-brewed coffees and espresso based
specialty coffee beverages such as lattes, cappuccinos and espressos.  These
products are an integral part of the overall positioning of the concept, as they
address the customer's desire to eat healthy food, which is served quickly.


                                        8
<PAGE>

     The Paradise Bakery cafe is a proven concept with limited competition in
the upscale bakery cafe market.  The concept is now properly positioned to take
advantage of the significant growth opportunities in both traditional as well as
non-traditional sites nationwide.  To exploit those opportunities the "new
generation" Paradise Bakery model was developed with the objective of expanding
the current site criteria and actively target the over 766 shopping malls with
Gross Leasing Area greater than or equal to 800,000 sq. ft. in the United
States.  The Company will use its existing developer relationships, a
professional food court site selection company, to continue to select future
sites. The first two new generation Paradise Bakery cafes were developed and
opened, in cooperation with an existing franchisee of Paradise Bakery, in
Littleton, Colorado, and at the Southwest Airlines terminal in the Phoenix
Airport.  Paradise Bakery's "new generation" Paradise Bakery cafes have a new
upscale design and an improved and expanded menu. In addition to mall locations,
the cafe's new design will work well in power centers, office buildings,
airports, as well as university and college campuses.

     INDUSTRY OVERVIEW

          JAVA CENTRALE COFFEE CAFES

     Although the coffee market is huge and continues to grow at a strong rate,
the competition in the industry has increased significantly and has made it more
difficult for the smaller companies, such as Java Centrale, to obtain favorable
new locations and to operate profitably. Annual U.S. coffee sales have now
reached $8 billion.  Specialty coffee consumption has increased 30% per year for
the last three years.  Find/SVP, a leading research organization, forecasts 20%
to 25% compounded annual growth rates in sales of specialty (gourmet) coffee for
many years to come.  The Specialty Coffee Association trade group estimates that
"coffee bar" outlets like those in the Java Centrale system will more than
double from about 4,500 recently to over 10,000 by the year 2000.  The growth of
specialty coffee sold for home consumption has continued in the 1990's, with
sales projected to double to an estimated $3 billion by 1999.  In 1983, gourmet
coffee accounted for 10% of the total U.S. coffee market.  Today, it accounts
for an approximate 30% share of the coffee market.  It is projected that by the
end of the decade, it will account for 50% of all coffee sales.

     The Company believes that the increasing popularity of specialty coffees
over the last several years can be attributed to five major factors which have
led to the transformation of specialty coffee from a highly specialized and
small segment of the coffee industry in the United States to an independent and
growing sector of the market. These five major factors are: (1) the trend toward
healthy eating, including the reduced consumption of alcoholic beverages, (2)
the availability of automatic drip coffee makers for the home, (3) the rising
price of regular coffee, (4) the rise of the gourmet foods market, and (5)
several technological innovations, including improved decaffeination methods and
the introduction of the one-way valve for coffee packaging, which allows carbon
dioxide to escape but does not permit oxygen to enter, thereby stretching the
shelf life of coffee from just a few days to nearly one year. 


                                        9
<PAGE>

     PARADISE BAKERY CAFE

     In the on-premises baking portion of the food industry, where Paradise 
is well positioned; industry experts expect robust growth of 25% to 30%.  
That is one of the highest growth rates in the entire food service industry. 
The Gallup Organization, in a special report prepared for the International 
Dairy-Deli-Bakery Association in 1995, confirmed that there had been strong 
growth in the consumption of sweet goods, such as cookies, muffins, and 
danish or pastries, between 1990 and 1995.

     COMPANY STRATEGY

     The Company's strategic objectives are to expand the Java Centrale system
of  coffee cafes by opening new franchisee-owned operations in selected
locations in the Western United States, and to develop the Paradise Bakery
system into the leading North American bakery/cafe company serving fresh baked
goods by opening new Company-owned and franchised locations in the United States
and Canada. The Company plans to achieve this goal by selling only the highest
quality products, producing a superior level of customer service, and
establishing a high degree of customer loyalty and repeat business. Each of the
above elements of the Company's strategy  is discussed below.

     HIGHEST QUALITY COFFEE.  The Company believes that its specifications for
the selection, roasting and delivery of its coffee beans and beverages are among
the highest in the coffee industry. However, due to the competitive nature of
this industry and the importance placed on this type of proprietary information
independent proof of this assertion is not available to the Company. The Company
believes that its roasting specifications for each variety of Arabica bean which
it offers provide for roasting of the bean to the degree that accentuates the
character of the individual coffee.  Certain coffees have a tendency to have
more fragile characteristics that need to be roasted lighter in order to protect
the integrity of that particular variety, while other coffees having stronger
characteristics that overpower subtle nuances within that variety are enhanced
by a darker level of roasting.  Since coffee beans are an agricultural product
that varies from season to season and from farm to farm, the Company reviews its
roasting specifications regularly and, if necessary, modifies those
specifications in order to bring each variety of coffee bean to its optimum
flavor potential.

     PRODUCT IS THE CONCEPT.  The foundation of Paradise's Bakery business is
its deliciously fresh products, which consist of bakery items, sandwiches and
salads.  Paradise Bakery uses only the finest ingredients in preparing its food
products.  In order to enhance a quality image, we use well-known brands as in
selected products.  Each day our cookies, muffins, and brownies are prepared
from scratch.  Our pastries, cinnamon rolls, pecan rolls, bagels and croissant
products are baked on premise daily.  All Paradise Bakery fresh baked menu items
are preservative-free and many are approved by the American Heart Association.
Paradise Bakery features certain bakery products that are low in fat, yet rich
in nutrients with no artificial flavors or colors.  Our sandwiches and salads
are made to order.  Our customer easily understands the price value
relationship, since


                                       10
<PAGE>

we serve generous portions at reasonable prices.

     CUSTOMER SERVICE.  A basic premise of the Company's business philosophy is
that it serves many customers on many different levels.  The Company views its
vendors and suppliers as one level of customers, its franchises and Company
facility managers as another level of customers, and the end consumer/customer
as a third level customer who benefits from the relationships between the
Company and all of its levels of customers.  Therefore, the Company provides the
same type of attention and service to each of these levels as would be expected
by the end consumer/customer of the Company's products.

     MERCHANDISING AND MARKETING.  The Company has a comprehensive
merchandising, marketing and image program featuring its logo and trademarks on
its signs, cafe interiors, cups, bags, packaging, promotional pieces and
literature.  The program is designed to create a distinctive brand image and
brand awareness as well as provide the consumer with repeat customer incentives.
The Company has wide range of literature that gives the customer a source for
information about the origins and characteristics of coffees, as well as
grinding, brewing and storing methods and techniques that the Company believes
will result in the best coffee beverages.

     SITE SELECTION.  The Company's goal in cafe site selection is to locate its
cafes in high-traffic, high-visibility locations within areas that have
appropriate demographics, other retail business use and residential backup.

     EXPANSION/ACQUISITION.  The Company's strategy is to expand the Paradise
Bakery/Cafe system through new franchised and/or Company owned locations both in
the eastern and western parts of the United States and also to continue the
development of the Java Centrale coffee cafes through only franchisee-owned
locations primarily in the Western United States.  The Company does not intend
to complete any additional acquisitions.

     SOURCING.  The Company currently obtains its coffees pursuant to the
Producer Agreement between the Company and Coffee Bean International ("CBI"), an
independent roaster.  Pursuant to the Producer Agreement, several different
varieties of green coffee beans are purchased, roasted, packaged and shipped by
CBI in accordance with the Company's specifications specifically detailed in the
Producer Agreement.  All green beans purchased in accordance with the Producer
Agreement are of the Arabica species and the Company believes that the Arabica
beans, which are purchased pursuant to the Producer Agreement, are among the
best available from each producing region.

     RETAIL SALES.  The Company sells over 40 different varieties of whole bean
and fresh ground coffees together with rich flavorful brewed coffees, espresso
beverages, Italian sodas and other upscale beverages, through its system of
Company-operated and franchised European style gourmet coffee cafes, carts and
kiosks.

     THE COMPANY OPERATIONS OF CAFES AND KIOSKS

     Distribution of the Company's products is done exclusively through a system
of Company-operated and franchised cafes and kiosks under the two brand names.
As of March 31, 1997, the Company had franchise agreements for cafe franchises
and 8 cart franchise locations in 11 states of which 55 franchisee-owned cafes
and 8 franchisee-owned carts were in operation. The following 


                                       11
<PAGE>

table represents the Company's operations:

                       Operating Units as of March 31, 1997

                               Cafe                  Cart/Kiosks
                       Company     Franchised    Company     Franchised
---------------------------------------------------------------------------
Java Centrale              1          22            0              8

Oh La La!                 -            -            -              -

Paradise Bakery           16          33            -              -
---------------------------------------------------------------------------
Total                     17          55            0              8

                       Operating Units as of March 31, 1996

                               Cafe                  Cart/Kiosks
                       Company     Franchised    Company     Franchised
---------------------------------------------------------------------------
Java Centrale              8          20            1              8

Oh La La!                 10           -            3              -

Paradise Bakery           18          33            -              -
---------------------------------------------------------------------------
Total                     36          53            4              8



                                       12
<PAGE>

                       Operating Units as of March 31, 1995
                               Cafe                  Cart/Kiosks
                       Company     Franchised    Company     Franchised
---------------------------------------------------------------------------
Java Centrale              1          11            3             11

Oh La La!                 10           -            3              -

Paradise Bakery            -           -            -              -
---------------------------------------------------------------------------
Total                     11          11            6             11

     As of March 31, 1997, the Company had received an aggregate $1,899,629 in
cash representing initial fees under its franchise agreements, and is entitled
to receive an additional $170,000 in cash fees when it completes its obligations
under such agreements, which obligations are expected to be completed no later
than December of 1999.  The Company's revenues are currently derived primarily
from Company-owned facilities, initial franchise fees, franchise royalties,
equipment sales, and product overrides on sales to its franchisees.

     DEVELOPMENT TIME.  After the signing of a franchise agreement for a
particular location or locations, the amount of time necessary to develop that
location and eventually open and operate the cafe or kiosk varies depending on
several factors including site selection, preparation and approvals of plans,
acquisition of necessary permits, length of construction period and whether the
training of the employees will take place on-site or off-site.  Based on the
Company's experience to date, the average development time of a single-unit cafe
franchise has been 4 to 8 months.

     In addition to these development factors, multi-unit franchisees are
obligated under their franchise agreements to build cafes based on a three to
five year development schedule in which the majority of the locations are opened
in the first half of the development schedule.  In the case of multi-unit
developments, it is necessary to develop real estate relationships that are
likely to provide more than one desirable location and, therefore, extra time
and care is devoted to contracting with the right firm for that purpose in the
market in question.  This recruiting process could require an additional thirty
to sixty days. In the case of a single unit franchise where the territory is a
subset of the larger market, the Company typically selects the most experienced
commercial real estate firm that specializes in retail locations in that defined
area.  All of these factors affect the Company's ability to open cafes within a
specific time frame.  Although the development of a single franchised or
Company-owned cafe will always be subject to these timing factors, the number of
cafes opened in any given month or year will increase dramatically as additional
franchises are sold and leases for Company locations are signed.

     PRODUCT MIX.  The Company's Java Centrale cafes sell over 40 different
varieties of whole bean and fresh ground coffees together with rich flavorful
brewed coffees, espresso beverages, Italian sodas and other upscale beverages.
The Company's cafes offer six brewed coffees daily: one light and one dark
varietal, a Java Centrale House Blend, a varietal decaffeinated coffee, a
flavored coffee, and a flavored decaffeinated coffee.  In addition, the Company
has developed its own line of contemporary espresso based beverages which are
designed to appeal primarily to younger


                                       13
<PAGE>

customers and women.  In addition to selling numerous coffees and other
specialty beverages, the cafes offer the consumer a wide selection of gourmet
sandwiches, salads, soups, pastries and desserts as well as coffee-making
equipment and accessories such as brewers, espresso makers, grinders, mugs and
carafes.

     The Company's Java Centrale kiosks offer the full range of espresso based
specialty beverages and Italian sodas offered in the Company's cafes, as well as
brewed coffees and a selection of morning pastries.

     Paradise Bakery has developed a brand identity of quality over its 20 years
of existence.  It uses only the finest ingredients in preparing all food
products.

     Freshly baked cookies, muffins and croissants have been, and will remain,
the signature products at Paradise's cafes.

     Since its inception, Paradise has been offering its customers the highest
quality products at reasonable prices.  Strategically, the concept appeals to an
audience that is seeking high quality, freshly prepared bakery
products--cookies, muffins, croissants, brownies, cinnamon rolls and other
bakery goods made from scratch on the premises.  Most items are baked throughout
the day to reinforce our commitment to fresh baked products.

     Our cafes also feature freshly made specialty sandwiches, entree salads,
pasta salads, and soups.  These products are an integral part of the overall
positioning of the concept, as they address the customer's desire to eat healthy
food, which is served quickly.

     The Paradise Bakery menu has evolved over the years in order to meet the
changing lifestyles of our customers.  For example, to satisfy health-conscious
customers, Paradise offers many pastry and food items, which are low in fat.
Paradise's re-designed and expanded menu has been an overwhelming success with
both existing and new customers alike.

     PRICING.  The Company prices its coffees, menu items and retail goods at or
above the prevailing high-end prices for these items in each of its markets. The
products offered by the Company are of the highest quality and would command a
premium price based on value alone.  Additionally, the Company's research on
specialty consumers has shown that they expect to pay a higher price for
specialty food and beverage products and look with suspicion on products, even
products of high quality, that are priced below the market.  This strategy
differentiates the Company from many of its retail competitors that are required
to compete on a PRICE ONLY basis.  The Company believes that this pricing
strategy assures that necessary margins are protected and thereby allows the
Company and its franchisees to focus primarily on product quality and service to
earn and retain customers.

     DESIGN.  The Company's Java Centrale cafes are designed to provide the
customer with a modern, comfortable and convenient cafe and meeting place with a
European flair.  The design uses a combination of primary colors that give the
cafes a different and distinctive look when compared with the facilities of the
Company's competitors.  The Company believes that the distinctive look of its
cafes will help the consumer to more readily remember its name and its products,
thereby


                                       14
<PAGE>

resulting in a higher level of repeat customer business for its cafes.

     The Company's Paradise Bakery cafe design has evolved over the years always
adapting to the ever-changing consumer needs.  Presently, the majority of the
Paradise cafes have a design of a tropical theme utilizing the color palette of
light blue, pink and white.  The attractive cafe designs and functional building
plans are an integral part of the Paradise success formula.  These designs
provide an exciting environment that supports product display, encourages
impulse sales and provides color efficiency.

     Paradise has upgraded its design to meet today's consumer demands for novel
food products and services to meet their constantly evolving needs and tastes.
The most recent design change reflects a more open, unique eating experience at
Paradise by enabling the customer to come into a tantalizing theater brimming
with irresistible foods and beverages.  The color palette is changing to light,
effervescent, bright fruit and vegetable colors, such as mango, lemon, grape,
tomato, and avocado.  Other changes include extensive use of product display,
fresh food graphics, and enhanced graphic communication system.  The cafes with
this new design have been well accepted by the customers.

     To emphasize its baked from scratch method of product preparation, the
ovens are now located in the front of the house in full customer view allowing
them to observe the high quality baked items being prepared fresh throughout the
day.  The sandwich making station has been redesigned into a "display kitchen"
type of preparation area where customers can see their sandwiches being made
from wholesome breads and other fresh ingredients.  The internally lighted
bakery displays are made of a marble like material whose quality and beauty
helps draw the customers attention to the fresh baked products offered for sale.

     SUPPLIES.  The Company and its franchisees purchase their food, beverages
and supplies only from Company-approved suppliers.  All products must meet the
standards and specifications set by the Company.  Management of the Company
constantly monitors the quality of the coffee, food, beverages and other
supplies provided to the cafes, carts and kiosks.  The Company has been
successful in negotiating national distribution and price concessions from
suppliers for bulk purchases of coffee, food and paper supplies used by the
Company's system of cafes, carts and kiosks.  The Company believes that these
arrangements have achieved cost savings, improved quality and consistency and
helped decrease volatility of coffee, food and supply costs.  The Company
believes that essential coffee, food and beverage products are available or,
upon short notice, could be made available from alternate qualified suppliers.

     MANAGEMENT AND EMPLOYEES.  Each Company-owned or franchised cafe employs an
average of approximately 15 hourly employees, most of whom work part-time.  The
management staff of a typical cafe operated by the Company consists of a general
manger, an assistant manager and one crew leader.  A typical franchised location
is managed directly by the franchisee and an assistant manager and one crew
leader.  Company cafe managers report to a district manger, while franchised
locations work in conjunction with one of the Company's franchise field
representative.  The district mangers or franchise field representatives are
responsible for assuring compliance with the Company's products and facilities'
standards and supervising and assisting in the implementation of the Company's
local cafe marketing programs.


                                       15
<PAGE>

     TRAINING.  The Company's Java Centrale cafe training program has two parts.
The first part is an intensive two-week program at the Company's training
facility in Folsom, California consisting of both classroom and on-the-job
training.  The classroom training includes such topics as the origins of coffee,
coffee comparisons, food safety and sanitation, employment laws and regulations,
interviewing and hiring of employees, and systems to control both food and labor
costs.  The on-the-job training concentrates on using the grinding, brewing and
espresso making equipment, preparing and serving the various brewed coffees and
espresso beverages, and preparing and serving the various menu items.  In all
cases, the in-cafe training emphasizes the importance of fast and friendly
customer service.

     The second part of the training takes place at the cafe prior to opening.
The Company's training team works with the franchisee or Company-owned cafe
manager over a thirteen-day period to prepare the facility for business and
train the opening crew.  The schedule provides for one day of staging and
planning, eight days of crew orientation and training, one day working with
management to take the beginning inventory and prepare the cafe for business,
and the first three days of operations.

     The Company's franchise field representatives generally visit each
franchised cafe on a monthly basis.  The franchise field representative acts as
a business consultant to franchisees in an effort to ensure that each cafe and
cart is providing the highest quality products and fast, friendly service.  In
addition, the field representative assists in developing business and marketing
plans, as well as in the training and development of the franchisee's staff.  In
effect, the franchise field representative acts as the communication link
between the Company and each franchisee.  The Company plans to have a ratio of
one field representative for each 15 to 20 franchised cafes and carts.

     The Paradise training program currently consists of four weeks at a company
cafe in southern California and an additional two weeks of pre-opening and
opening training at the franchised cafe location.

     Franchisees receive extensive training covering all aspects of cafe
operation at the training location in southern California.  The training takes
place in a fully functional cafe where the franchisee receives operations
manuals and hands-on experience.  Training continues with on-site assistance in
the cafe, including setup and planning for the grand opening.  Training never
ends, as the Company always strives to deliver better products and service.
Paradise Bakery & Cafe field support representatives work with the franchisee on
a regular basis to help refine and improve their local operations.

     ADVERTISING AND PROMOTION. The Company instills in each new franchisee's
mind that while quality baked goods and food is the heart and soul of the
system, marketing is the lifeblood of the business.  Repetition, in fact, builds
reputation.  The Company strives to teach them how to be 1% better than the
competition in 100 different ways.  The goal is to increase the levels of
customer awareness and in turn the customer counts through a consistent
advertising campaign that promotes the location and the quality bakery and food
products offered by the Company.

     The Company has not collected any advertising funds from the Java Centrale
franchisees


                                       16
<PAGE>

and is currently discussing with the franchisees the establishment of a
advertising fund.

     Through a cooperative effort between the advertising department and the
outside advertising resources, Paradise Bakery & Cafe expands consumer awareness
of its products, enhances system-wide identity and increases sales.

     The Company currently collects $164 per month from each Paradise Bakery
location. The advertising funds are being used to develop point of sale material
and local promotion.

     FRANCHISE OPERATIONS

     STRATEGY. The Company's growth strategy is to develop franchised cafes for
Paradise Bakery in key metropolitan markets and continue franchising the Java
Centrale coffee cafes primarily in the Western United States.  Based upon the
Paradise Bakery's operating history to date, the Company believes that it can
continue to attract financially and personally qualified franchisees based on
the strength of its cafe and Paradise bakery/cafe concepts.  The majority of the
Java Centrale locations have not had a profitable operating history and the
Company expects it to be difficult to attract franchisees.

     AGREEMENTS.  The Company offers single unit Franchise Agreements and multi-
unit Area Development Agreements.  The single unit Franchise Agreement grants to
the franchisee an exclusive license to operate a cafe at a specified location in
accordance with the Company's terms and conditions and to utilize the Company's
trademarks, service marks and other rights of the Company relating to the sale
of its items.   The term of a Franchise Agreement for a cafe is ten years,
renewable at the option of the franchisee for successive five-year periods, if
certain conditions pertaining to such renewal are met.  The Area Development
Agreement grants to the franchisee the right to develop and open a specified
number of cafes in a defined geographic area within a limited period of time and
thereafter to operate each cafe in accordance with the terms and conditions of
the Franchise Agreement executed for each cafe location.

     Either party may terminate a Franchise Agreement, or an Area Development
Agreement by giving notice of default in the event the other party breaches or
fails to comply with any of the terms, covenants, conditions or restrictions
applicable to such party, or if such party breaches any warranty or
representation contained in the Franchise Agreement or the Area Development
Agreement.  The Company may also terminate a Franchise Agreement or an Area
Development Agreement without notice for several reasons, including among
others, the franchisee's bankruptcy or insolvency, cessation of business,
committing a default within 12 months of curing the same default or committing
repeated defaults, whether or not such defaults are cured after notice.  The
franchisee may also terminate a Franchise Agreement in the event there is a
permanent and incurable inability of the Company or an authorized supplier to
supply the products required to be furnished under the Franchise Agreement or in
the event there is a supply interruption that lasts more than 180 days.

     Although franchise fees are payable to the Company upon the execution of a
single-unit Franchise Agreement or an Area Development Agreement, the Company
only recognizes such fees as revenue when all material services or conditions
relating to the sale of the franchise have been


                                       17
<PAGE>

substantially performed or satisfied by the Company.  See "Note B of Notes to
Financial Statements".

     FRANCHISE FEES AND ROYALTIES

     CAFES.  Under the Company's current Franchise Agreement for cafes, each
franchisee is generally required to pay a franchise fee of $35,000.  The
franchise fee is generally paid to the Company upon the execution of the
Franchise Agreement and is non-refundable.  If the franchisee thereafter
executes another Franchise Agreement for an additional cafe at a different
location, the franchisee is generally required to pay a franchise fee of $15,000
for each such additional cafe location, which franchise fee is non-refundable.
If a franchisee purchases an area pursuant to an Area Development Agreement, the
franchisee must pay an Area Development Fee of $5,000 for each cafe to be
developed in accordance with the Agreement's development schedule.  The Area
Development Fee is paid to the Company in full upon the execution of the Area
Development Agreement and is not refundable.  In addition to the Area
Development Fee, the Company is entitled to receive a Cafe Fee for each cafe
location to be opened under the terms of the Agreement.  The first Cafe Fee of
$20,000 is due upon execution of the Area Development Agreement and is non-
refundable.  The subsequent Cafe Fees of $10,000 per location are due when
leases are signed and are non-refundable.

     The rights of each cafe, whether opened on an individual basis or by an
area franchise, include the right to operate satellite locations within the
exclusive territory of that cafe.  Satellite locations are kiosk or counter
operations located in self-contained facilities where full cafe operation is not
feasible.  Facilities occupied by one of franchisee's satellite locations are
governed by the existing Franchise Agreement, and once opened are considered a
part of the franchised business.  The Company is generally entitled to a
satellite location opening fee of $3,500 which is paid to the Company upon
approval of the satellite location and is non-refundable.

     Each cafe franchisee is generally required to pay the Company on a
weekly/monthly basis a 4%-6% royalty on cafe or satellite location gross
receipts (not including sales tax) and to pay on a weekly basis 2% of the cafe's
gross receipts (not including sales tax) to the Company's national advertising
fund after the Company has 25 cafes in operation, whether Company-owned or
franchised.  Each cafe franchisee is also required to spend 2% of its gross
receipts (not including sales tax) on local cafe marketing.

     FRANCHISEE SUPPORT SERVICES

     SITE SELECTION.  The Company assists the franchisee with site selection for
cafes.  Through the Company's network of commercial real estate site selectors,
the Company often finds a site that meets its demographic criteria before the
franchisee.  In any case, the franchisee and the Company must mutually approve
each site before a lease is signed.

     CONSTRUCTION AND EQUIPMENT.  The Company as of April 1996, discontinued
operation of the turn-key construction and equipment option to franchisees.  The
Company will offer a selected national equipment supplier and assist in the
construction solutions.   The Company believes that the change to an outside
third party will allow the franchisee to build the cafe at the best price and
value.


                                       18
<PAGE>

     FIELD SUPPORT.  The Company maintains a staff of well-trained and
experienced franchise field representatives who help to train franchisees and
assist them in opening new cafes and who monitor the operations of existing
locations.  These services are provided as part of the Company's franchise
program.

     MARKETING AND ADVERTISING SUPPORT.  The Company provides franchisees with a
full range of marketing materials and consumer literature.  The Company
regularly prepares and provides to franchisees feature promotions relating to a
specific coffee, beverage, food or retail item.  These items, in conjunction
with the Company's Local Cafe Marketing Manual, provide the core of the
marketing and advertising support system.  The franchise field representative
and the Company's marketing department work with the franchisee to implement and
monitor the effectiveness of the various promotions.

     COMPETITION

     The Company's whole bean coffees compete directly against specialty coffees
sold at retail through supermarkets specialty retailers and a growing number of
specialty coffee stores.  The Company's coffee beverages compete directly
against all restaurant and beverage outlets that serve coffee and a growing
number of espresso stands, carts, and stores.  Both the Company's whole bean
coffees and coffee beverages compete indirectly against all other coffees on the
market.  The Company believes that its customers choose among retailers
primarily on the basis of quality and convenience, and to a lesser extent, on
price.

     Management believes that supermarkets pose the greatest competitive
challenge in the whole bean coffee market, in part because supermarkets offer
customers the convenience of not having to make a separate trip to the Company's
stores.  A number of nationwide coffee manufacturers, such as Kraft, General
Foods, Procter & Gamble and Nestle are distributing premium coffee products in
supermarkets and those products may serve as substitutes for the Company's
coffees.  Regional specialty coffee companies, such as Green Mountain Coffee,
Inc., Hillside Coffee and Starks, also sell whole bean coffees in supermarkets.

     In addition, the Company competes for whole bean coffee sales with other
franchise operators and locally owned specialty coffee stores.  There are a
number of competing specialty coffee retailers with significantly more locations
than the Company, such as Starbucks Corporation, which has a total of 1100+
retail stores and licensed airport stores located in the United States and
Canada, Gloria Jean's Coffee Bean Corp., a franchisor of approximately 250+
specialty coffee stores located primarily in shopping malls throughout the
United States, Barnie's Coffee and Tea Co., a franchisor with approximately 90
locations in the United States, and The Coffee Beanery Ltd., a franchisor of
specialty coffee stores which operates approximately 165 locations in the United
States.

     The Company's primary competitors for beverage sales are restaurants,
shops, and street carts.  The competition in the beverage market is significant
and there are numerous competitors with substantially greater financial
operating and marketing resources than the Company.

     The Company competes with fast food chains, major restaurant chains and
other food


                                       19
<PAGE>

service related franchisors for franchisees of its cafes, carts and kiosks.
Many franchisors have greater market recognition and greater financial,
marketing and human resources than the Company.

     The Paradise concept has limited competition in the upscale bakery cafe
segment.  As noted by the Fessel International market study commissioned by the
Company, Paradise has no direct competition in its targeted niche.  Paradise
does not directly compete with the other food court operators and usually does
not encounter those concepts that it does compete with in food court situations.

     Paradise indirectly competes with a variety of fast service food concepts,
some of which are located in covered malls.  Some competition comes from
concepts, such as, Au Bon Pain, which is a bakery/cafe concept, or
sandwich/salad concepts, such as Wall Street Deli, that are closely located to a
particular Paradise.  Other types of competitors are strictly bakery products
driven, such as, Cinnabon and Mrs. Fields.  What sets Paradise apart from most
competitors are menu mix, positioning, and value.

     GOVERNMENT REGULATION

     The Company is subject to Federal Trade Commission ("FTC") regulation and
state laws, which regulate the offer and sale of franchises.  The Company is
also subject to a number of state laws which regulate substantive aspects of the
franchisor-franchisee relationship.  The FTC's Trade Regulation Rule on
Franchising (the "FTC Rule") requires that the Company to furnish to prospective
franchisees a franchise offering circular containing information prescribed in
the FTC Rule.

     State laws that regulate the offer and sale of franchises and the
franchisor-franchisee relationship presently exist in a substantial number of
states.  Such laws generally require registration of the franchise offering with
state authorities and regulate the franchise relationship by, for example,
requiring the franchisor to deal with its franchisees in good faith, prohibiting
interference with the right of free association among franchisees, limiting the
imposition of standards of performance on a franchisees and regulating
discrimination against franchisees in charges, royalties or fees.  Although such
laws may restrict a franchisor in the termination of a franchise agreement by,
for example, requiring "good cause" to exist as a basis for the termination,
advance notice to the franchisee of the termination provides an opportunity to
cure a default and a repurchase of inventory or other compensation, these
provisions have not had, and are not expected to have, a material effect on the
Company's franchise operations. The Company is not aware of any pending
franchise legislation, which in its view is likely to significantly affect the
operations of the Company. The Company believes that its operations comply in
all material respects with the FTC Rule and the applicable state franchise laws.

     Each Company-owned and franchised cafe and kiosk is subject to licensing
and regulation by a number of governmental authorities, which may include
health, sanitation, safety, fire building and other agencies in the state and
municipality in which the cafe or kiosk is located.  Additionally, the food
service industry in general is subject to extensive federal, state and local
government regulations relating to the development and operation of food service
outlets, including laws and


                                       20
<PAGE>

regulations relating to building and seating requirements, the preparation and
sale of food, cleanliness, safety in the work place and accommodations for the
disabled.  The Company-owned and franchised cafes which are currently operating
are subject to various federal, state and local laws and regulations, including,
without limitation, the Fair Labor Standards Act, the Americans With
Disabilities Act, the Department of Agriculture, the Food & Drug Administration,
and various state agencies.  Difficulties in obtaining or failure to obtain the
required licenses or approvals could adversely affect currently operating cafes
and could delay or prevent the development of a new cafe or kiosk in a
particular area or location.

     The Company is also subject to federal and state environmental regulations,
but, to date, these regulations have not had and are not expected to have in the
future, any material effect on the Company's operations.  More stringent or
varied requirements of local governmental authorities with respect to zoning,
land use and environmental matters could delay or prevent the development of a
new cafe or kiosk in a particular area or location.

     The Company is also subject to state and federal labor laws that govern its
relationship with its employees, such as minimum wage requirements, overtime and
working conditions, citizenship requirements and prohibitions against
discrimination.  Significant numbers of the Company's food service and
preparation personnel are paid at rates governed by the federal minimum wage
laws.  Accordingly, further increases in the minimum wage will increase the
Company's labor costs.

     TRADEMARKS

     The Company has registered the Java Centrale name and the Paradise Bakery
name and their logos with the United States Department of Commerce Patent and
Trademark Office.  The Company currently uses a variety of other trademarks,
which it expects to file applications for registration beginning in December of
1996.  These trademarks are "Centrale Royale", "The Daily Brews", "For the Luv-
a-Java", "Java Jive",  "Nice 'n Iced", "Splendid Blended" , "Cookie Munchers
Paradise", "Paradise Bakery", "Paradise Bakery Unique Quality", "Cookie
Muncher's Paradise A Unique Bakery", "Paradise Bakery & Cafe", and "Chip
Munchers".


     EMPLOYEES

     As of March 31, 1997, the Company had 10 full time salaried employees and 8
hourly employees at its headquarters location in Sacramento, California.
Additionally as of such date, the Company also employed 35 salaried employees
and 234 hourly employees in its operations.  None of the Company's employees is
represented by a labor union and the Company considers relations with its
employees to be generally good.

     (d)  FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
          SALES

          Not Applicable.

ITEM 2.   DESCRIPTION OF PROPERTY

     The Company leases 7768 square feet of office space in Sacramento,
California, which it utilizes for its corporate headquarters.  The Company has a
lease for the facility, which expires in


                                       21
<PAGE>

August of 2001.

     The Company assumed leases for 29,999 square feet as part of the Paradise
Bakery Company operation in California and Texas.  These leases expire from 1997
to 2005.

     The minimum aggregate rental for all these properties is $1,382,666.

ITEM 3.   LEGAL PROCEEDINGS

     On December 11, 1995, Coffee Centrale, Inc., a franchisee of the Company in
Dallas, Texas, and its owners Diana and Iosif Etinger (together, the
"plaintiffs") sued the Company in the 44th Judicial District Court of Dallas
County, Texas.  The Plaintiffs allege that the Company committed fraud and
violated the Texas Business Opportunity Act by knowingly misrepresenting
material facts concerning the Plaintiff's franchisee and committing other
misleading or deceptive acts, breached its fiduciary duty in connection with the
Plaintiffs' entry into a lease agreement for the premises committed
discriminatory pricing by paying a lower price and/or receiving rebates for
brand name products not available to the Plaintiffs, causing the Plaintiffs to
receive a different price than similarly situated Company franchisees for a like
kind or quality of goods. Relief sought in this suit includes unspecified actual
damages and punitive damages in excess of $2,000,000. The Company, which has
denied the allegations, has filed a related action against Coffee Centrale, Inc.
in the Federal District Court in Sacramento, California, alleging breach of the
franchise agreement. Although the proceedings are still at an early stage, no
depositions have yet been taken in the Texas case, and therefore no prediction
may be made as to its outcome, the Company's management believes that the
Plaintiff's claims are without substantial merit, and on that basis believes
that the ultimate disposition of this litigation will not have a material
adverse effect on the Company's financial condition or operating results.

     On June 27, 1997 Mr. Peter Merganthaler, an individual resident of the
State of Florida, filed suit against the Company in the 15th Judicial Circuit
Court in Palm Beach Country, Florida alleging breach of two 1995 financial
consulting agreements.  The relief sought by Mr. Merganthaler includes payment
of approximately $30,000 in consulting fees, $20,000 in out of pocket expenses
and $500,000 in commissions on private placements of the Company's Common Stock.
The Company believes that the Company has substantial defenses to all of the
claims asserted by Mr. Merganthaler, and it intends to deny the allegation made
in his complaint.  On that basis, the Company believes that the ultimate
disposition of this lawsuit will not have a material adverse effect on the
Company's financial condition or operating results.

     On March 30, 1995, the Company issued to Oh La La!, Inc, Debtor-in
Possession, a promissory note in principal amount of $932,342 ("the "Note").
The Note was convertible into shares of the Company's common stock, at its 
option and under certain circumstances.  In September of 1995 the Company 
notified representatives of PSSS, Inc., successor in interest to Oh La La!, 
Inc., that the required circumstances had been met and that it intended to 
convert the note into shares of its common stock, and a number of shares 
sufficient to convert the outstanding principal balance of the Note was 
delivered to representatives of PSSS, Inc.  In November of 1996, PSSS, Inc. 
notified the Company that it rejected the September 1995 conversion because 
the shares delivered to it were not sufficient to convert the 
then-outstanding interest due on the Note, and on May 28, 1997, PSSS, Inc. 
sent Java a formal demand letter for the immediate payment of the


                                       22
<PAGE>

principal amount of the Note plus $122,602.97 in accrued interest to date of
such letter.  To date, there has been no formal resolution of the claim asserted
by PSSS, Inc.  The Company's management believes that the Company has
substantial defenses to the claim that the September 1995 conversion was
ineffective, and on that basis believes that the ultimate disposition of the
claims asserted by PSSS, Inc. in this matter will not have a material adverse
effect on the Company's financial condition or operating results.

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

     None.



                                       23
<PAGE>

                                     PART II

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

     The Company's Common Stock is its only class of equity securities
outstanding.  The Common Stock is listed for trading on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") Small Cap List,
under the symbol "JAVC."  The following table sets forth, for the calendar
quarterly periods indicated, the range of high and low sale prices for the
Common Stock as reported by NASDAQ since January 1, 1995.


                                                  High            Low
                                                  -----          -----
     1995
     First Quarter                                $2.63          $1.63
     Second Quarter                               $3.13          $1.00
     Third Quarter                                $8.75          $2.50
     Fourth Quarter                               $5.44          $2.00

     1996
     First Quarter                                $3.25          $1.56
     Second Quarter                               $1.63          $ .75
     Third Quarter                                $1.63          $ .50
     Fourth Quarter                               $1.00          $ .50

     1997
     First Quarter                                $ .69          $ .44
     Second Quarter (through July 10, 1997)       $ .50          $ .19


     At June 30, 1997, there were 165 holders of record of the Company's Common
Stock.  The Company has never paid a cash dividend on its Common Stock, and does
not anticipate paying any dividends in the immediately foreseeable future.  As a
California corporation, the payment of dividends by the Company is limited by
California law and subject to the discretion of its Board of Directors.  With
certain exceptions, a California corporation may not pay a dividend to its
shareholders unless its retained earnings equal at least the amount of the
proposed dividend. California law further provides that, in the event that
sufficient retained earnings are not available for the proposed distribution, a
corporation may nevertheless make a distribution to its shareholders if it meets
the following two generally stated conditions: (a) the corporation's assets
equal at least 1.25 times its liabilities, and (b) the corporation's current
assets equal at least its current liabilities, or if the average of the
corporation's earnings before taxes on income and before interest expense for
the two preceding fiscal years was less than the average of the corporation's
interest expense for such fiscal years, then the corporation's current assets
must equal at least 1.25 times its current liabilities.


                                       24
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA

     The following table sets forth the selected operating results and balance
sheet data of the Company for the periods and as of the dates indicated.  The
selected financial data was derived from the Company's financial statements
which have been audited by Grant Thornton LLP, independent certified public
accountants, and should be read in conjunction with such financial statements
and related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>

    STATEMENT OF OPERATIONS DATA:

                                                           Year Ended March 31
                                           -----------------------------------------------------
                                              1997(3)            1996(1)(2)             1995
                                           -----------------------------------------------------
<S>                                        <C>                  <C>                 <C>
Revenues                                   $ 14,808,888         $ 9,554,800         $ 1,775,670
Operating expenses                           19,735,293          13,592,885           3,810,807
                                           ------------        ------------        ------------
Operating loss                               (4,926,405)         (4,038,085)         (2,035,137)
Debt conversion expense                               -                   -            (118,953)
Interest Income (expense), net                 (399,787)             71,659             259,907
                                           ------------        ------------        ------------
Net loss                                   $( 5,326,192)        $(3,966,426)        $(1,894,183)
                                           ------------        ------------        ------------
                                           ------------        ------------        ------------
Loss per equivalent common
   share (1) (2)                             $     (.46)         $     (.61)         $     (.42)
                                           ------------        ------------        ------------
                                           ------------        ------------        ------------
Common stock and
   equivalent
   common shares
   outstanding
   --weighted average                        11,540,800           6,526,377           4,488,532
                                           ------------        ------------        ------------
                                           ------------        ------------        ------------

BALANCE SHEET DATA:
                                                       March 31,
                                           ---------------------------------
                                                1997                  1996  
Working capital (deficit)                  $ (2,856,439)        $  (312,601)
Total assets                               $ 11,017,990         $16,732,067
Notes payable                              $    344,349         $ 4,800,215
Common stock                               $ 18,507,874         $15,493,137
Accumulated deficit                        $(13,438,422)        $(8,112,230)
</TABLE>

___________________
(1)  For the year ended March 31, 1996, the Company completed 12 months of
     operation from the Oh La La! acquisition dated March 31, 1995.

(2)  For the year ended March 31, 1996, the Company's results include  three
     months of operation from the Paradise Bakery acquisitions dated December
     31, 1995. (See footnotes E of the Notes to Consolidated Financial
     Statements.)

(3)  For the year ended March 31, 1997, the Company sold the Oh La La! Division
     in December 1996. (see footnote F of the Notes to Consolidated Financial
     Statements.)


                                       25
<PAGE>

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

GENERAL

     The Company began operations on March 5, 1992, and operated as a
development stage enterprise through the end of its fiscal year ended March 31,
1993.  As a development stage enterprise, the Company focused its efforts on
financial planning, raising capital, research and development, establishing
sources of supply, developing markets, organizing the corporation, acquiring
assets, and developing its business plan.  During this time, the Company
completed the filing of its Uniform Franchise Offering Circulars.  The Company
also opened its training facility in Folsom, California, which is now being used
to provide training to franchisees and their key employees in the operations of
franchisee-owned Java Centrale cafes.

     The Company has never earned a profit in any fiscal year.  Since its 
incorporation in 1992, the Company's operations have required (rather than 
provided) cash every year.  In order to meet these cash requirements, the 
Company has from time to time sold common stock, borrowed short-term money, 
sold company assets and issued convertible debt.  The Company recorded a loss 
in the development stage during its first fiscal year of operation and since 
principal operations commenced and has recorded a loss for the fiscal years 
ended March 31, 1993, 1994, 1995, 1996 and 1997.  The net loss for fiscal 
1997 was $5,326,192. There can be no assurance that losses will not continue, 
or that the Company as currently constituted will become profitable in the 
future.  As of March 31, 1997, the Company had an accumulated deficit of 
$13,438,422. In the fiscal year ended March 31, 1997, the Company sold 
assets, raised debt and equity, and reduced expenses to meet its ongoing 
liquidity needs.  Currently the Company has a material working capital 
shortfall.

     During fiscal 1997 and to date, the Company has been operating at a loss 
primarily due to its administrative overhead and the under performance of the 
cafes in its Java Centrale system.  Commencing in April 1996. The Company 
instituted a plan to reduce its administrative expenses, but this plan has 
not been successful enough to cause the Company to become profitable.  
Further, the Company's Java Centrale system has in general not grown as fast 
or proved to be as profitable as expected, and the Company has experienced 
higher than anticipated expenses in pursuing the development of these cafes 
and in the closing of certain outlets in this system.

     The Company's financing plan over the last year to meet its ongoing 
liquidity needs has been to raise new equity through private placements, 
refinance or obtain new debt funding and sell assets of the Company's 
operation. The Company is maintaining its financing plan of seeking new 
equity, obtaining or refinancing debt and pursuing the sale of assets related 
to the Company's operation.  In February 1997, the Company hired an outside 
advisor to assist with the refinancing of the debt or the raising of new 
equity and to date there has been no financing completed. As of June 30, 
1997, the Company is in negotiations with various parties and no certainty 
can be given as to the ultimate outcome of these discussions.

     The Company's continuing operating losses have left it in a materially 
weak cash-flow position, one effect of which has been that the Company has 
been unable to develop its more profitable Paradise Bakery system as rapidly 
and extensively as it has planned to do.

                                       26
<PAGE>

     Since April of 1996, the Company has relied on a series of short-term 
loans from Alta Petroleum, Inc. in the aggregate amount of $775,000, sale of 
assets totaling $1,321,000 and the raising of $900,000 in equity to finance 
its continuing cash flow shortfalls.  (See "Certain Transactions," below.)  
There can be no assurance that any similar financing, asset sales or equity 
placements will continue to be available to the Company in the future.  
Consequently, under current circumstances the Company does not anticipate 
that it will be able to continue existing operations in the future unless it 
can obtain new short-term or long-term financing, raise new equity or make a 
significant sale of assets. A special committee of the Company's Board of 
Directors has been constituted in order to evaluate a number of options for 
the resolution of its immediate and long-term financial needs, including 
among other potential alternatives the sale of its Java Centrale and/or 
Paradise Bakery systems, obtaining a long-term loan secured by its Paradise 
Bakery assets, a private and/or public sale of Company stock and/or other 
securities, and a strategic merger.  Some of the alternatives currently being 
studied by the Company's Board of Directors might result in a change in the 
management and/or control of the Company.  However, no final resolution of 
these issues has yet been arrived at.

     As of March 31, 1997, the Company had operating 17 Company-owned locations
and 63 franchisee-owned locations, as compared to 40 Company-owned locations,
and 61 franchisee-owned locations as of March 31, 1996, and 17 Company-owned
locations and 22 franchisee-owned locations as of March 31, 1995.

     The Company entered into agreements with franchisees to open 26 cafes
during the year ended March 31, 1997, as compared to entering into agreements
with franchisees to open 33 cafes during the year ended March 31, 1996.  The
Company entered into agreements to open 22 cafes and six carts during the year
ended March 31, 1995.

     The Company opened seven franchisee-owned cafes, and no Company-owned
cafes, during the fiscal year ended March 31, 1997, as compared to opening 16
franchisee-owned cafes and two Company-owned cafes during the year ended March
31, 1996.  The Company opened 11 franchisee-owned cafes and eight franchisee-
owned carts during the fiscal year ended March 31, 1995.

     The Company closed two Company-owned cafes, one Company-owned cart and 9
franchisee-owned cafes in the fiscal year ended March 31, 1997 as compared to
one franchisee-owned cafe close in the fiscal year ended March 31, 1996 and one
in the fiscal year 1995.  These cafes closed primarily due to poor financial
performance.

     The Company sold six Company-owned locations to franchisees and acquired 
no cafes during the fiscal year ended March 31, 1997, as compared to selling 
no Company-owned locations, acquiring five cafes from franchisees, which were 
operated as Company-owned cafes after the acquisition, and selling two 
Company-owned carts for the year ended March 31, 1996, and none for the year 
ended March 31, 1995.  As part of these cafe acquisitions, the Company also 
reacquired the rights to open 58 cafes in California, Nevada,  Illinois, and 
other eastern states.  The Company acquired the cafes for sale by franchisees 
and have re-franchised three Company-owned cafes to new franchisees and plans 
to re-franchise the remaining cafes.  The cafes were experiencing financial 
and operational difficulties under the franchisee management.  As part of the 
acquisition the Company canceled receivables from the franchisees related to 
equipment purchased by the two

                                       27
<PAGE>

of the franchisees to open the cafes.

     The Company sold three Company-owned cart locations to a licensee and 
sold the development rights to South Korea during the fiscal year ended March 
31, 1997 as compared to none for the fiscal years ended 1996 and 1995.

     The Company entered into three management agreements with two 
franchisees to operate Company-owned cafes during the year ended March 31, 
1997, as compared to none for fiscal year ended March 31, 1996 and 1995.  
During the year ended March 31, 1997, the Company terminated two management 
agreements.  One agreement was terminated due to the sale of the location to 
a franchisee and one agreement was as a result of financial difficulties. 
During the fiscal years ended March 31, 1996 and 1995 no management 
agreements were entered into.

     On November 14, 1994 the Company entered into a Joint Venture Formation 
Agreement with Banyan Capital, Limited Partnership for the development of 50 
cafes in the State of Florida over a five-year period, and for rights to 
other markets on the Eastern Seaboard.  The Joint Venture Formation Agreement 
and related transactions was completed in July 1995 and as of March 31, 1996, 
there were three cafes operating under this agreement. In March 1997 the 
Company and Java Southeast terminated this joint venture agreement whereby 
the Company reacquired the franchise rights to the State of Florida.  The 
three open cafes will be de-imaged by December 1997.

     On March 30, 1995, the Company completed its acquisition of 
substantially all of the assets of Oh La La!, Inc., a Delaware corporation 
headquartered in Northern California.  At the time of this transaction, Oh La 
La! was the Debtor-in-Possession in a Chapter 11 bankruptcy proceeding.  The 
assets purchased included tenant improvements, equipment, and goodwill.  The 
purchase price for the acquired assets were $2,104,000 and liabilities in the 
amount of $113,000 were assumed as part of the transaction.

     In December of 1996 the Company sold the assets of Oh La La! to Good 
Food Fast Companies, Inc. "GFF" for $1,250,000 in cash, 233,333 shares of 
preferred stock and $750,000 in notes receivable due in 1999. On March 31, 
1997 the Company agreed with GFF to exchange $250,000 of the convertible note 
receivable for the assumption of certain liabilities of the Company, exchange 
233,333 preferred shares for 233,333 shares of common stock, accelerate a 
payment of $145,000 due under the note receivable to May 1997 and converted 
the remaining $355,000 balance of the note into 40,000 shares of GFF common 
stock. The common shares of GFF at March 31, 1997, have been valued at $2.00 
per share based on the fair value of such shares.  The Company recognized an 
aggregate loss of $304,638 from the sale of Oh La La! and the subsequent 
conversion of the note receivable into common shares.  As of March 31, 1997, 
following the related conversions, the Company owned approximately 30% of the 
outstanding common shares of GFF.  The Company did not recognize any earnings 
from GFF under the equity method of accounting due to immateriality.

     On December 31, 1995, the Company acquired 100% of the outstanding stock 
of Paradise Bakery, Inc.  At the time of the acquisition, Paradise Bakery had 
seven Company-owned and 44 franchisee-owned bakery/cafes operating in nine 
states.  On January 1, 1996, the Company acquired through a merger with 
Founders Venture, Inc., eight franchisee-owned bakery/cafes operating in 
Texas.  On January 1, 1996, the Company acquired through an asset purchase 
agreement three franchisee-owned bakery/cafes operating in Northern 
California.  Immediately following these three acquisitions, the Company was 
operating 18 Company-owned and 33 franchisee-owned bakery/cafes. These 
acquisitions of Paradise bakery/cafe locations will represent a significant

                                       28
<PAGE>

portion of the Company's revenues and operations.

     RESULTS OF OPERATIONS

     The Company's revenues are currently derived primarily from 
Company-owned locations, initial franchise fees, resulting from cafe 
openings, franchise royalties, equipment sales, and product overrides on 
sales to its franchisees. Franchise fees range from $15,000 to $25,000 per 
cafe.  The Company is entitled to 4%-6% of the gross receipts from each 
franchised cafe and 2%-10% of the gross receipts from each franchised cart.  
Product overrides range from 3% to 10% of the total purchase of coffee from 
the Company's contract roaster.

     FISCAL 1997 AS COMPARED TO FISCAL 1996

     Total Company revenues for the fiscal year ended March 31, 1997 totaled 
$14,809,000, as compared to $9,555,000 for the year ended March 31, 1996, an 
increase of $5,254,000, or 55%.  The principal components of this increase 
were:

     The Company's revenues from Company-owned retail operations increased by
$5,229,000, or 69%, to $12,814,000 for the fiscal year ended March 31, 1997,
from $7,585,000 for the fiscal year ended March 31, 1996.  This increase
resulted primarily from an increase of $6,682,000, in revenues from operating
the acquired Paradise Bakery Company-owned locations for 12 months during the
fiscal year ended March 31, 1997 as compared to operating the acquired Paradise
Bakery Company-owned locations for three months during the fiscal year ended
March 31, 1996.  Additionally, revenues declined from prior years as a result 
of the sale of the Oh La La! Division in December 1996 and the sale and
closure of Company-owned cafes for approximately $1,450,000.

     Revenues from the Company's franchising operations increased $144,000, or
36% to $539,000 for the fiscal year ended March 31, 1997, from $395,000 for the
fiscal year ended March 31, 1996.  This increase is a result of the following
recognized franchise fees: $128,000 associated with the opening of five Java
Centrale franchisee-owned cafes and two Paradise Bakery franchisee-owned cafes,
$117,000 associated with the sale of two Company-owned Paradise Bakery cafes to
one franchisee and three Company-owned Java Centrale cafes to two franchisees,
$10,000 associated with the transfer of ownership of two Java Centrale
franchisee-owned locations, $45,000 forfeited fees associated with four Java
Centrale franchisees and one Paradise Bakery franchisee, $140,000 in forfeited
franchise fees directly related to the termination of the joint venture
agreement,  and $83,129 associated with the licensing rights agreement to South
Korea for the fiscal year ended March 31, 1997, as compared to the recognition
franchise fees during the fiscal year ended March 31, 1997 of: $330,000
associated with opening 15 franchisee-owned Java Centrale cafes and $64,788 in
association with forfeited Java Centrale franchise fees.

     Revenues from the Company's royalties increased $811,000 or 154%, to
$1,336,000 for the fiscal year ended March 31, 1997, from $525,000 for the
fiscal year ended March 31, 1996.  This increase resulted primarily from the
royalties associated with the franchise operation of Paradise Bakery for the 12
months during the fiscal year ended March 31, 1997 as compared to three months
during the fiscal year ended March 31, 1996, amounting to $675,000 along with
the additional franchisee-owned locations operating during the 1997 fiscal year
as compared to 1996.


                                       29
<PAGE>

     Revenues from the Company's equipment sales decreased $929,000, or 88%, to
$121,000 for the fiscal year ended March 31, 1997 from $1,050,000 for the fiscal
year ended March 31, 1996.  This decrease resulted primarily from discontinuing
the sale of equipment directly to franchisees in May of 1996.

     Total expenses for the year ended March 31, 1997 were $19,735,000, an
increase of $6,142,000 or 45%, over expenses of $13,593,000 for the year ended
March 31, 1996.  The principal components of the increase in expenses resulted
from:

     The cost of food and beverage, labor, and operating costs for the Company's
retail operations increased $5,015,000, for the year ended March 31, 1997, to
$12,518,000, as compared to $7,503,000 for the year ended March 31, 1996.  The
increase resulted primarily from an increase in expenses of $6,108,000
associated with operating the Paradise Bakery locations for 12 months during the
fiscal year ended March 31, 1997 as compared to three months for the fiscal year
ended March 31, 1996, in addition to a decrease of $1,093,000 in operating costs
associated with the sale of three Company-owned Java Centrale cafes, two
Company-owned Paradise Bakery cafes and the sale of the Oh La La! locations in
December 1996.

     The Company's cost of equipment decreased by $889,000, or 86%, in the year
ended March 31, 1997, to $149,000, as compared to $1,038,000 for the year ended
March 31, 1996.  This increase resulted primarily from discontinuing the sale of
equipment directly to franchisees in May of 1996.

     Selling, general, and administrative expenses increased $416,000, or 10%,
during the year ended March 31, 1997, to $4,603,000 from $4,187,000 during the
1996 fiscal year.  This increase results from; increases in general and
administration expenses associated with the operation of the Paradise Bakery
locations for 12 months for the fiscal year 1997 as compared to three months for
the fiscal year 1996 totaling $739,000, the recognition of expense for the re-
design of the Paradise Bakery cafe concept totaling $76,000 and decreased
expenses in the fiscal year 1997 resulted from consulting expenses reduced by
$264,000, personnel costs reduced by $365,000, advertising and marketing
expenses reduced by $334,000 and merger expenses decreased a total of $40,000.
Additionally other increases in general and administrative expenses are  legal
and accounting increased $217,000, as a result of expenses associated with
capital raising activities and settlements, fees and expenses associated with
the issuance of common stocks of  $39,000.

     For the year ended March 31, 1997, the Company had an operating loss of 
$4,926,405, a net loss of $5,326,192, and a loss per share of $.46, as 
compared to an operating loss of $4,038,000, a net loss of $3,966,000, and a 
loss per share of $.61 for the fiscal year ended March 31, 1996.  The 
increased operating loss of $888,000 is primarily a result of higher general 
and administrative expenses as described above totaling $416,000, a loss of 
$275,000 relating to the conversion of a note receivable into common shares, 
settlement expenses relating to two franchisees and a former employee of 
Paradise Bakery amounting to $336,000, increased bad debt expenses of 
$398,000 resulting from certain franchisee related notes and royalties, a 
loss from the termination of the joint venture in Florida totaling $257,000, 
virtually the same expense relating to the closure of cafes at $413,000 for 
each fiscal year, and higher depreciation and amortization expenses 
associated with the acquisition of Paradise Bakery totaling $205,000.  The 
operating loss improved this fiscal year as compared to last fiscal year as a 
result of higher operating margins associated with the operations of 
Paradise Bakery for 12 months for the fiscal year ended 1997 as compared to 
three months for the fiscal year ended 1996 amounting to $752,000, lower 
losses for the operations of Java Centrale totaling

                                       30
<PAGE>

$180,000 and higher depreciation and amortization expenses associated with the
acquisition of Paradise Bakery totaling $205,000.


     The increased net loss of $1,360,000 is a result of the above increased
operating loss of $888,000, and an increase in interest expense and fees
associated with the Company's financings of $545,000.

     FISCAL 1996 AS COMPARED TO FISCAL 1995

     Total Company revenues for the fiscal year ended March 31, 1996 totaled
$9,555,000, as compared to $1,776,000 for the year ended March 31, 1995, an
increase of $7,779,000, or 438%.  The principal components of this increase were
increased revenues amounting to $6,249,000 from the Oh La La! purchased
locations and the acquisition of the Paradise Bakery operations as of December
31, 1995.

     The Company's revenues from Company-owned retail operations increased by
$7,108,000, to $7,585,000 for the fiscal year ended March 31, 1996 from $477,000
for the fiscal year ended March 31, 1995.  This increase resulted primarily from
$3,424,000 in revenues recognized with the acquisition of the Oh La La!
locations and $2,826,000 in revenues recognized with the acquisition of the
Paradise Bakery locations.  Additionally there was an increase of $858,000 or
180% in revenues from the addition of five Company-owned Java Centrale locations
during the 1996 fiscal year.

     Revenues from the Company's franchising operations slightly decreased
$3,000, or 1% to $395,000 for the fiscal year ended March 31, 1996, from
$398,000 for the fiscal year ended March 31, 1995, resulting from a decrease in
forfeited franchise fees recognized by the Company during the 1996 fiscal year
of $49,000, as compared to $79,000 received during the 1995 fiscal year.

     Revenues from the Company's royalties increased $327,000 or 165%, to
$525,000 for the fiscal year ended March 31, 1996, from $198,000 for the fiscal
year ended March 31, 1995.  This increase resulted primarily from the royalties
associated with the acquisition of Paradise Bakery amounting to $196,000 and the
opening of 15 new franchisee-owned locations during the 1996 fiscal year.

     Revenues from the Company's equipment sales increased $348,000, or 50%, to
$1,050,000 for the fiscal year ended March 31, 1996 from $702,000 for the fiscal
year ended March 31, 1995.  This increase resulted primarily from an increase of
15 franchisee-owned cafe locations opened during the 1996 fiscal year, as
compared to the 11 franchisee-owned cafe locations opened during fiscal 1995.
The Company sells the equipment required to substantially all of its franchisee-
owned locations.

     Total expenses for the year ended March 31, 1996 were $13,593,000, an
increase of $9,782,000, or 257%, over expenses of $3,811,000 for the year ended
March 31, 1995.  The principal components of the increase in expenses resulted
from $7,126,000 in operating expenses associated with the acquisition of the Oh
La La! locations and the acquisition of Paradise Bakery. Additionally, the
increase resulted from the Company recognizing during the fiscal year end 1996,
a one-time non-recurring expense of $453,000 relating to the issuance of shares
below market


                                       31
<PAGE>

pursuant to a consulting agreement to develop acquisitions, franchising
opportunities and consult regarding investment relation matters for the Company.
Additionally, there was an increase in the cost of equipment, selling, general
and administrative expenses, depreciation and amortization and other operating
costs from the addition of Oh La La! and Paradise Bakery.

     The cost of food and beverage, labor, and operating costs for the Company's
retail operations increased $6,862,000, for the year ended March 31, 1996, to
$7,503,000, as compared to $641,000, for the year ended March 31, 1995.  The
increase resulted primarily from $5,197,000 in operating costs associated with
the acquisition of the Oh La La! locations and the acquisition of the Paradise
Bakery locations.  Additionally, an increase of $1,288,000 in operating costs
associated with the addition of six Company-owned Java Centrale cafes during the
1996 fiscal year as compared to the 1995 fiscal year.

     The Company's cost of equipment increased by $263,000, or 34%, in the year
ended March 31, 1996, to $1,038,000, as compared to $775,000 for the year ended
March 31, 1995.  This increase resulted primarily from the growth in the
Company's opening seven additional franchisee-owned locations during the year.

     Selling, general, and administrative expenses increased $1,910,000, or 81%,
during the year ended March 31, 1996, to $4,261,000 from $2,351,000 during the
1995 fiscal year, primarily because of higher expenses associated with legal,
accounting, consulting, investor relations, and higher expense relating to
franchise recruitment, training, and support, and overall administration
salaries relating to the acquisition of Oh La La! and Paradise Bakery.
Additionally, the increase resulted from the Company recognizing during the
fiscal year end 1996, a one-time non-recurring expense of $453,000 relating to
the issuance of shares below market pursuant to a consulting agreement to
develop acquisitions, franchising opportunities and consult regarding investment
relation matters for the Company.

     For the year ended March 31, 1996, the Company had an operating loss of
$4,038,000, a net loss of $3,966,000, and a loss per share of $.61, as compared
to an operating loss of $2,035,000, a net loss of $1,894,000, and a loss per
share of $.42 for the fiscal year ended March 31, 1995.  The increased operating
loss and net loss primarily resulted from higher expenses associated with the
Java Centrale system, increased administrative salaries, legal, accounting,
consulting and investor relations, depreciation and amortization, and increased
expenses associated with franchisee recruitment, support and training and the
recognition of $410,000 in losses associated with cafe and cart closures.
Additionally, the increase resulted from the Company recognizing during the
fiscal year end 1996, a one-time non-recurring expense of $453,000 relating to
the issuance of shares below market pursuant to a consulting agreement to
develop acquisitions, franchising opportunities and consult regarding investment
relation matters for the Company.


                                       32
<PAGE>

     LIQUIDITY AND CAPITAL RESOURCES

     The Company's initial capitalization was obtained through the issuance of
2,500,000 shares of no par common stock for $10,000 on March 5, 1992.  In
addition, the Company issued 2,950,000 shares of Series A cumulative preferred
stock, in exchange for 2,950,000 shares of no par cumulative preferred stock,
which were subscribed for on March 5, 1992 for proceeds of $590,000, on
March 12, 1993.  On March 30, 1993, the Company sold 5,000,000 shares of no par
value redeemable Series B cumulative preferred stock for $1,000,000.  The
proceeds from the issuance of all such stock were used for capital acquisitions
and operating costs of the Company during its development stage.  On
May 19, 1994, the Company raised $7,288,000 in net proceeds from an initial
public offering of 1,500,000 shares of common stock.  Of the 4,291,820 shares
outstanding after the offering, 855,300 were placed in escrow and are subject to
an Escrow Agreement which provides for the release of such shares on or before
March 31, 1999, with earlier release based upon the financial performance of the
Company.  See Item 12 "Security Ownership of Certain Beneficial Owners and
Management -- Escrow Agreement," below.

     The Company used a portion of the proceeds from the initial public offering
to repay long term debt, purchase equipment and furniture, support the operating
losses in developing the Company's operating system, and pay $500,000 as part of
the purchase price to acquire the operating assets of Oh La La!, Inc.

     On July 15, 1994, the Company paid a 25% stock dividend on its Common Stock
to shareholders of records on June 30, 1994.  Prior to the issuance of the
dividend, employees and officers of the Company holding securities, including
warrants and options, waived their rights to receive the stock dividend and also
waived the impact such stock dividend would have on any options or warrants held
by the security holders, including, but not limited to, any anti-dilution
provisions relating to such options and warrants.

     In the 1996 fiscal year the Company issued 1,604,692 common shares for
$3,540,722 in proceeds in a series of private placements.  The Company also
issued convertible debt in three separate private transactions totaling
$3,500,000.  As of March 31, 1996, none of the convertible debt was converted
into the Company's common stock. During the fiscal year ended March 31, 1997
$2,054,150 convertible debt had been converted into 3,311,183 shares of the
Company's common stock .

     From April1, 1997, to July 10, 1997, an additional $445,750 has been
converted into 2,386,226 shares.  Additionally, in July 1997, the Company has
agreed to restructure the remaining portion of the unconverted note totaling
$1,000,000, into a note due no later than January 1998, pledging of the Paradise
Bakery, Inc. shares as collateral and added $250,000 to the balance of the note
to eliminate the conversion feature of the note.

     The Company used $5,375,000 of the cash raised through the private
transactions to acquire 100% of the common stock in Paradise Bakery, Inc., on
December 31, 1995.  Additionally, as part of the acquisition of Paradise Bakery,
Inc., the Company issued notes to the seller in the amount of $1,350,000.  The
Company also issued notes in the amount of $46,071 to the sellers and assumed
$97,950 in debt obligation associated with the asset purchase of the three
Paradise Bakery locations.


                                       33
<PAGE>

The Company assumed bank debt in the amount of $1,085,000 and $24,535 in lease
obligations associated with the merger of Founders Venture, Inc., into Paradise
Bakery, Inc.

     As of March 31, 1996, the Company had received $144,839 in partial funding
of a lease commitment amounting to $240,000.  The Company has received the
remaining portion of this commitment by June 30, 1996 for equipment cost of
Company-owned Java Centrale cafes.

     During fiscal year ended March 31, 1997, the Company sold a total of
1,538,462 shares of its common stock in two private placements, for net proceeds
of $900,000 to fund continuing operations.

     As part of the purchase price for the assets of Oh La La! acquired by 
the Company on March 31, 1995, the Company issued to Oh La La!, Inc. a note 
payable of $745,874, and assumed liabilities for tenant improvement loans 
related to the properties acquired of $113,306. In January of 1996, the 
Company converted a note payable of $745,874 into 234,000 shares of common 
stock pursuant to the terms of the note associated with the acquisition of Oh 
La La!. In December of 1996, the Company sold the assets of Oh La La! to Good 
Food Fast Companies Inc. "GFF" for $1,250,000 in cash, 233,333 shares of 
preferred stock and $750,000 in notes receivable due in 1999. On March 31, 
1997, the Company agreed with GFF to exchange $250,000 of the convertible 
note receivable for the assumption of Oh La La!, the Company and GFF entered 
into an agreement whereby GFF assumed certain liabilities of the Company, 
exchange 233,333 preferred shares for 233,333 shares of common stock, 
accelerate a payment of $145,000 due under the note receivable to May 1997 
and convert the remaining $355,000 balance of the note to 40,000 shares of 
GFF common stock.  The common shares of GFF at March 31, 1997, have been 
valued at $2.00 per share based on the fair value of such shares.  The 
Company recognized an aggregate loss of $304,638 from the sale of Oh La La! 
and the subsequent conversion of the note receivable into common shares.  As 
of March 31, 1997, following the related conversions, the Company owned 
approximately 30% of the outstanding-common shares of GFF.  The Company did 
not recognize any earnings from GFF under the equity method of accounting due 
to inmateriality. 

     In April 1996, the Company completed a financing for $400,000, which
pledged the assets of Oh La La!.  This note was paid from the proceeds of the
cash portion on the sale of Oh La La! in December 1996.

     In May 1996, the Company completed the sale of two Company-owned Paradise
Bakery cafes to a franchisee for proceeds of $280,000, which were applied to the
note due Sanwa Bank from the merger of Founders Venture, Inc.

     In July 1996, the Company borrowed $350,000 under a note due in April 1997.
This note was paid with the proceeds of the long-term debt in November 1996,
when the Company completed a financing of $779,000 in long-term debt, pledging
the assets of Paradise Bakery.  Although the Company is currently in default of
certain financial covenants under this note, it is current with the required
monthly payments under the note.  The Company also used proceeds of the $779,000
to pay a note due Chart House Enterprises in the amount of $330,000.

     As of March 31, 1996, the Company had no line of credit available to it and
as of March 31, 1997 had the $175,000 management line of credit available to it.
In July 1996, Baycor, Gary


                                       34
<PAGE>

Nelson, President and Chief Executive Officer, and Steven J. Orlando, Chief
Financial Officer, agreed to loan the Company $175,000 from time to time as
needed until April 1997, when the line of credit will be due and payable.  The
lenders would receive a general lien on Java Centrale assets and will be at an
interest rate of principal plus 2% per annum. In replacement of the line of
credit, in April of 1997 Gary Nelson advanced the Company $50,000 and Steven
Orlando deferred $28,000 in salary due from December 1996 through April 1997 and
Baycor deferred the receipt of salary and expenses, without interest, during the
1997 fiscal year.  The maximum deferral for Baycor was $145,041 as of January
31, 1997, and the amount remaining unpaid as of June 30, 1997 was $93,633 and
$64,952 at March 31, 1997.

     The Company has never earned a profit in any fiscal year.  Since its 
incorporation in 1992, the Company's operations have required (rather than 
provided) cash every year.  In order to meet these cash requirements, the 
Company has from time to time sold common stock, borrowed short-term money, 
sold company assets and issued convertible debt.  The Company recorded a loss 
in the development stage during its first fiscal year of operation and since 
principal operations commenced and has recorded a loss for the fiscal years 
ended March 31, 1993, 1994, 1995, 1996 and 1997.  The net loss for fiscal 
1997 was $5,326,192. There can be no assurance that losses will not continue, 
or that the Company as currently constituted will become profitable in the 
future.  As of March 31, 1997, the Company had an accumulated deficit of 
$13,438,422. In the fiscal year ended March 31, 1997, the Company sold 
assets, raised debt and equity, and reduced expenses to meet its ongoing 
liquidity needs.  Currently the Company has a material working capital 
shortfall.

     The Company's financing plan over the last year to meet its ongoing
liquidity needs has been to raise new equity through private placements,
refinance or obtain new debt funding and sell assets of the Company's operation.
The Company is maintaining its financing plan of seeking new equity, obtaining
or refinancing debt and pursuing the sale of assets related to the Company's
operation.  In February 1997, the Company hired an outside advisor to assist
with the refinancing of the debt or the raising of new equity and to date there
has been no financing completed. As of June 30, 1997, the Company is in
negotiations with various parties and no certainty can be given as to the
ultimate outcome of these discussions.

     During fiscal 1997 and to date, the Company has been operating at a loss
primarily due to its administrative overhead and the under performance of the
cafes in its Java Centrale system.  Commencing in April 1996. The Company
instituted a plan to reduce its administrative expenses, but this plan has not
been successful enough to cause the Company to become profitable.  Further, the
Company's Java Centrale system has in general not grown as fast or proved to be
as profitable as expected, and the Company has experienced higher than
anticipated expenses in pursuing the development of these cafes and in the
closing of certain outlets in this system.

     The Company's continuing operating losses have left it in a materially weak
cash-flow position, one effect of which has been that the Company has been
unable to develop its more profitable Paradise Bakery system as rapidly and
extensively as it has planned to do.

     Since April of 1996, the Company has relied on a series of short-term loans
from Alta Petroleum, Inc. in the aggregate amount of $775,000, sale of assets
totaling $1,321,000 and the raising of $900,000 in equity to finance its
continuing cash flow shortfalls.  (See "Certain Transactions," below.)  There
can be no assurance that any similar financing, asset sales or equity


                                       35
<PAGE>

placements will continue to be available to the Company in the future.
Consequently, under current circumstances the Company does not anticipate that
it will be able to continue existing operations in the future unless it can
obtain new short-term or long-term financing, raise new equity or make a
significant sale of assets.  A special committee of the Company's Board of
Directors has been constituted in order to evaluate a number of options for the
resolution of its immediate and long-term financial needs, including among other
potential alternatives the sale of its Java Centrale and/or Paradise Bakery
systems, obtaining a long-term loan secured by its Paradise Bakery assets, a
private and/or public sale of Company stock and/or other securities, and a
strategic merger.  Some of the alternatives currently being studied by the
Company's Board of Directors might result in a change in the management and/or
control of the Company.  However, no final resolution of these issues has yet
been arrived at.

     At the Company's current level of development, it does not generate net
cash from operations.  To fund its operations, the Company requires either
additional financing, significant sales of additional franchises, or a
substantial increase in its network of Company-owned cafes and carts.  The
Company incurred a net loss of $3,966,000 and used net cash of $2,391,000 in
operating activities for the year ended March 31, 1996 and incurred a net loss
of $5,326,192 and used net cash of $3,062,279 in operating activities for the
year ended March 31, 1997.

     The Company had developed a specific operating plan to meet the ongoing
liquidity needs of the Company's operations both for the year ended March 31,
1997, and thereafter.  During the fiscal year ended March 31, 1997, the Company
reduced administrative salaries, certain employee benefit costs, and marketing
expenses.  The Company also sold 20 of its existing Company-owned cafes and
carts for proceeds of $1,321,000 in cash and is actively pursing the sale of
additional assets.  Despite the sale (and possible future sales) of these
assets, the Company does intend to operate Company-owned locations.   The
Company also completed a number of debt financings totaling $1,729,000 and the
sale of equity for $900,000 to meet its ongoing liquidity needs in the fiscal
year ended March 31, 1997.

     Based on the Company's current cost structure and other expense 
calculations, and the Company's current and anticipated revenue streams, 
including sales of new Java Centrale franchises and the operating income 
expected to be produced by the Company's Paradise Bakery system, the Company 
cannot estimate that it will break even on cash flow in the current fiscal 
year. The Company does not expect to achieve profitability until after March 
31, 1998, and then only if the Company's growth projections can be met and 
its cost structure remains stable.  There can be no assurance that enough new 
franchises will be sold to provide the necessary liquidity, or that the 
Company's liquidity goals will be reached in the immediate future if ever.  
The Company has certain debt obligations that are in default for 
non-compliance with financial covenants and non-payment to the scheduled 
payments. These obligations have been classified as currently due in the 
financial statements and the Company cannot make any assurances as to the 
ultimate disposition of these debt obligations which total approximately 
$1,150,000 as of July 1997.  The Company's plan of operation to provide 
ongoing liquidity continues to include the sale of certain operating assets, 
the active pursuit of debt and equity and the restructure of debt.  The 
Company can not make any assurance that this plan will be achieved.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                                       36
<PAGE>

     The following 29 pages contain the Company's audited balance sheets as of
March 31, 1997 and 1996, and the related statements of operations, stockholders'
equity (deficit), and cash flows for the years ended March 31, 1997, 1996, and
1995.  No supplementary data is required to be filed by the Company by Section
302 of Regulation S-K.


                                       37

<PAGE>

     FINANCIAL STATEMENTS AND REPORT OF
     INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

          JAVA CENTRALE, INC.,
          AND SUBSIDIARY

          March 31, 1997, 1996 and 1995


                                       38

<PAGE>

                                    CONTENTS

                                                                          Page

CONSOLIDATED FINANCIAL STATEMENTS

     REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                    40

     CONSOLIDATED BALANCE SHEETS                                           42

     CONSOLIDATED STATEMENTS OF OPERATIONS                                 43

     CONSOLIDATED STATEMENT OF STOCKHOLDERS'                               44
          EQUITY (DEFICIT)

     CONSOLIDATED STATEMENTS OF CASH FLOWS                                 45

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                            47



                                       39
<PAGE>

              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders
JAVA CENTRALE, INC. AND SUBSIDIARY

We have audited the accompanying consolidated balance sheets of JAVA 
CENTRALE, INC. (A CALIFORNIA CORPORATION) and Subsidiary as of March 31, 1997 
and 1996, and the related consolidated statements of operations, 
stockholders' equity (deficit), and cash flows for the years ended March 31, 
1997 and 1996 and 1995.  These financial statements are the responsibility of 
the Company's management.  Our responsibility is to express an opinion on 
these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the consolidated financial position of Java Centrale, 
Inc. and Subsidiary as of March 31, 1997 and 1996, and the consolidated 
results of their operations and their consolidated cash flows for the years 
ended March 31, 1997, 1996, and 1995 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 C to the 
financial statements, the Company has experienced recurring net losses from 
operations and has a net loss of approximately $5,300,000 for the year ended 
March 31, 1997 and as of that date, the Company's current liabilities 
exceeded its current assets by approximately $2,900,000.  At March 31, 1997, 
the Company is in default under a note agreement and is not in compliance 
with certain debt agreement covenants which could result in the notes 
becoming due and payable on demand.  The Company's plan in regard to these 
matters are also described in Note C.  The accompanying financial statements 
do not include any adjustments relating to the recoverability and 
classification of recorded asset amounts or the amounts and classifications 
of liabilities should the Company be unable to continue as a going concern.

GRANT THORNTON LLP

Sacramento California
July 8, 1997


<PAGE>

                       JAVA CENTRALE, INC., AND SUBSIDIARY


                           CONSOLIDATED BALANCE SHEETS

                                    March 31,
<TABLE>
<CAPTION>

                                                ASSETS
                                                                   1997                1996
                                                                -----------        -----------
<S>                                                             <C>                <C>
CURRENT ASSETS:
  Cash and cash equivalents                                      $  350,608        $  1,182,078
  Notes receivable - current                                        448,369             485,751
  Accounts receivable (net of allowance of
     $176,223 in 1997 and $58,000 in 1996)                          591,536             405,574
  Inventories                                                       314,342             417,780
  Prepaid expenses and other                                        397,322             595,285
                                                              -------------       -------------
    Total current assets                                          2,102,177           3,086,468

NOTES RECEIVABLE                                                    989,603           1,298,574
PROPERTY AND EQUIPMENT, NET                                       2,781,158           5,737,980
INTANGIBLE ASSETS                                                 4,040,845           5,526,203
DEFERRED CHARGES AND OTHER                                          316,775             670,658
NOTES RECEIVABLE-OFFICER                                            240,766             235,201
INVESTMENT IN JOINT VENTURE                                               -             176,983
INVESTMENT                                                          546,666                   -
                                                              -------------       -------------
                                                              $  11,017,990       $  16,732,067
                                                              -------------       -------------
                                                              -------------       -------------

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                             $  1,123,573        $  1,807,136
  Accrued liabilities                                               620,424             726,244
  Due to related parties                                             44,295              22,637
  Current maturities of long-term debt                            1,945,488             746,785
  Convertible debt                                                1,197,068                   -
  Current capital lease obligations                                  27,768              96,267
                                                              -------------       -------------
    Total current liabilities                                     4,958,616           3,399,069

DEFERRED REVENUES                                                   576,000           1,003,500
LONG-TERM DEBT                                                            -           1,171,161
CONVERTIBLE DEBT                                                    248,682           3,500,000
CAPITAL LEASES                                                       95,667             129,054
OTHER LIABILITIES                                                    69,573             148,376

STOCKHOLDERS' EQUITY:
  Series B Redeemable Preferred Stock, $.01 per share
    per annum cumulative, convertible, no par
    25,000,000 shares authorized                                          -                   -
  Common stock, no par, 25,000,000 shares authorized,
    issued and outstanding shares; 13,743,804 - 1997
    and 8,533,587 - 1996                                         18,507,874          15,493,137
  Accumulated deficit                                           (13,438,422)         (8,112,230)
                                                              -------------       -------------
                                                                  5,069,452           7,380,907
                                                              -------------       -------------
                                                              $  11,017,990       $  16,732,067
                                                              -------------       -------------
                                                              -------------       -------------
</TABLE>



        The accompanying notes are an integral part of these statements.


                                       41
<PAGE>

                       JAVA CENTRALE, INC., AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                              Year ended March 31,
<TABLE>
<CAPTION>

                                                     1997                 1996                1995
                                               -------------        ------------        ------------
<S>                                            <C>                  <C>                   <C>
Revenue:
  Company cafe sales                           $  12,813,423       $   7,585,190        $    476,859
  Franchise operations                               538,629             394,788             398,000
  Royalties                                        1,335,616             524,635             198,413
  Sales of equipment and supplies                    121,220           1,050,187             702,398
                                               -------------       -------------        ------------

    Total revenue                                 14,808,888           9,554,800           1,775,670

Cost of company sales:
  Food and beverage                                4,451,072           2,597,238             222,857
  Labor                                            4,643,875           2,714,067             265,075
  Direct and occupancy                             2,705,026           1,742,044              72,999
  Cost of equipment and supplies                     148,857           1,038,497             774,984
  Depreciation                                       573,495             227,631              34,865
  Other                                              144,637             222,000              45,256
                                               -------------       -------------       -------------

    Total cost of company sales                   12,666,962           8,541,477           1,416,036
                                               -------------       -------------       -------------
General and administrative expenses                4,602,667           4,187,049           2,351,025
Depreciation and amortization                        584,873             380,159              43,746
Loss associated with cart and cafe closures          413,043             410,200                   -
Bad debt expense                                     472,011              74,000                   -
Settlement expense                                   336,000                   -                   -
Loss on conversion of note receivable                275,000
Loss on joint venture                                256,816                   -                   -
Loss on sale of cafes                                127,921                   -                   -
                                               -------------       -------------       -------------
    Operating loss                                (4,926,405)         (4,038,085)         (2,035,137)
                                               -------------       -------------       -------------
Other income (expense):
  Interest expense                                  (662,084)           (117,284)             (7,247)
  Interest income                                    113,168              98,295             216,842
  Debt conversion expense                                  -                   -            (118,953)
  Other income                                       149,129              90,648              50,312
                                               -------------       -------------         -----------
    Net loss                                    $ (5,326,192)       $ (3,966,426)       $ (1,894,183)
                                               -------------       -------------       -------------
                                               -------------       -------------       -------------


Net loss per weighted average equivalent
  common share outstanding                     $        (.46)      $        (.61)      $        (.42)
                                               -------------       -------------       -------------
                                               -------------       -------------       -------------
Equivalent common shares outstanding              11,540,800           6,526,377           4,488,532
                                               -------------       -------------       -------------
                                               -------------       -------------       -------------

</TABLE>

        The accompanying notes are an integral part of these statements.


                                       42
<PAGE>

                       JAVA CENTRALE, INC., AND SUBSIDIARY
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                 Three years ended March 31, 1997, 1996 and 1995


<TABLE>
<CAPTION>

                                             Preferred Stock                Common Stock              Accumulated
                                       -------------------------      ------------------------
                                         Shares         Amount          Shares          Amount          (Deficit)           Total
                                    ------------   -------------   ------------    ------------      ------------     ------------
<S>                                 <C>            <C>             <C>             <C>               <C>              <C>
Balances, March 31, 1994               5,000,000   $   1,000,000      3,016,820    $    600,000      $ (2,251,621)    $   (651,621)

Initial public offering of
  common stock, net
  of expenses                                  -               -      1,500,000       7,288,407                 -        7,288,407

Conversion of Series B
  preferred stock to
  common stock                        (5,000,000)     (1,000,000)       200,000       1,000,000                 -                -

Debt conversion expense                        -               -              -         118,953                 -          118,953

Shares issued for
  acquisition                                  -               -        600,000         569,500                 -          569,500

Net loss                                       -               -              -               -        (1,894,183)      (1,894,183)
                                    ------------   -------------   ------------    ------------      ------------     ------------
Balances, March 31, 1995                       -               -      5,316,820       9,576,860        (4,145,804)       5,431,056

Shares issued for cafe
  purchases                                    -               -        279,721         466,168                 -          466,168

Warrants converted to
  common stock                                 -               -        300,000         120,000                 -          120,000

Note payable converted to
  common stock                                 -               -        234,000         748,800                 -          748,800

Shares issued for acquisitions                 -               -        505,926         467,477                 -          467,477

Shares issued for private
  offerings, net of expenses                   -               -      1,604,692       3,540,722                 -        3,540,722

Shares issued for joint
  venture investment                           -               -         89,428         120,166                 -          120,166

Shares issued for consulting
  expenses                                     -               -        203,000         452,944                 -          452,944

Net loss                                       -               -              -               -        (3,966,426)      (3,966,426)
                                    ------------   -------------   ------------    ------------      ------------     ------------
Balances, March 31, 1996                       -               -      8,533,587      15,493,137        (8,112,230)       7,380,907

Conversion of convertible notes                -               -      3,311,183       1,850,552                 -        1,850,552

Shares issued for private
  offerings, net of expenses                   -               -      1,538,462         900,000                 -          900,000

Warrants converted to
  common stock                                 -               -        250,000          62,500                 -           62,500

Shares issued for consulting
  expenses                                     -               -        200,000          50,000                 -           50,000

Warrants issued for consulting
  expenses                                     -               -              -         240,351                 -          240,351

Warrants issued in connection
  with debt                                    -               -              -          31,500                 -           31,500

Shares canceled for joint
  venture investment                           -               -        (89,428)       (120,166)                -         (120,166)

Net loss                                       -               -              -               -        (5,326,192)      (5,326,192)
                                    ------------   -------------   ------------    ------------      ------------     ------------
Balances, March 31, 1997                       -   $           -     13,743,804   $  18,507,874    $  (13,438,422)    $  5,069,452
                                    ------------   -------------   ------------    ------------      ------------     ------------
                                    ------------   -------------   ------------    ------------      ------------     ------------
</TABLE>

         The accompanying notes are an integral part of this statement.



                                       43
<PAGE>

                       JAVA CENTRALE, INC., AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                                   Year ended
                                                                                                    March 31,
                                                                             ------------------------------------------------------
                                                                                   1997                1996                1995
                                                                             --------------      -------------       --------------
<S>                                                                          <C>                 <C>                 <C>
Cash flows from operating activities:
 Net loss                                                                    $  (5,326,192)      $  (3,966,426)      $  (1,894,183)
 Adjustments to reconcile net loss to net
   cash used in operating activities:
   Depreciation and amortization                                                 1,158,368             607,790              78,293
   Loss on conversion of note receivable                                           275,000                   -                   -
   Loss on joint venture                                                           256,816                   -                   -
   Settlement expense                                                              150,000                   -                   -
   Loss on sale of cafes                                                           127,921                   -                   -
   Debt conversion expense                                                               -                   -             118,953
   Loss associated with cart and cafe closures                                     413,043             410,200                   -
   Stock issued for consulting expenses                                            188,497             452,944                   -
   Warrants issued in connection with debt                                          31,500                   -                   -
   Changes in operating assets and liabilities:
     Inventories                                                                   (44,063)            (20,410)            (61,722)
     Deposits and prepaid expenses                                                 125,442            (318,478)           (217,457)
     Accounts payable and accrued liabilities                                     (924,075)            512,923             288,704
     Payable to related parties                                                     16,093            (221,668)             (8,492)
     Deferred revenue                                                             (417,500)            314,500              18,000
     Accounts receivable                                                          (276,948)             21,768            (111,283)
     Notes receivable                                                              962,237             200,718            (228,776)
     Deferred charges and other assets                                             248,555            (523,570)            143,936
     Other liabilities                                                             (26,973)            138,376                   -
                                                                               -----------        ------------        ------------
         Net cash used in operating activities                                  (3,062,279)         (2,391,333)         (1,874,027)

Cash flows from investing activities:
 Proceeds from cafe sales                                                        1,321,100                   -                   -
 Purchase of furniture and equipment                                              (313,446)         (1,432,166)           (333,074)
 Increase in intangible assets                                                     (15,001)             (2,225)                  -
 Investment in joint venture                                                             -             (13,404)                  -
 Cash paid for net assets acquired and other
   acquisition expenses                                                                  -          (5,554,427)           (676,170)
                                                                               -----------        ------------        ------------
         Net cash provided by (used in) investing activities                       992,653          (7,002,222)         (1,009,244)

Cash flows from financing activities:
 Proceeds from issuing convertible debt                                                  -           3,500,000                   -
 Proceeds from issuing common stock, net                                           900,000           3,540,722           7,288,407
 Proceeds from notes payable                                                     1,729,000                   -                   -
 Repayments of notes payable                                                    (1,361,695)           (494,206)           (678,000)
 (Payments) proceeds from capital lease obligations                                (91,649)            144,839                   -
 Proceeds from warrant conversions                                                  62,500             120,000                   -
                                                                               -----------        ------------        ------------
         Net cash provided by
              financing activities                                               1,238,156           6,811,355           6,610,407
                                                                               -----------        ------------        ------------
Net (decrease) increase in cash                                                   (831,470)         (2,582,200)          3,727,136

Cash and cash equivalents, beginning of period                                   1,182,078           3,764,278              37,142
                                                                               -----------        ------------        ------------
Cash and cash equivalents, end of period                                       $   350,608        $  1,182,078        $  3,764,278
                                                                               -----------        ------------        ------------
                                                                               -----------        ------------        ------------
</TABLE>


                                       44
<PAGE>

                       JAVA CENTRALE, INC., AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                             Year ended
                                              March 31,
                              ----------------------------------------
                                  1997           1996           1995
                              ----------      ---------       --------
Cash paid for:
     Income taxes             $    1,600      $       -       $      -
     Interest                 $  438,707      $  55,006       $  7,247


NON-CASH TRANSACTIONS:

     During the year ended March 31, 1997, the Company issued 200,000 shares of
     common stock valued at $50,000 pursuant to a consulting agreement.  The 
     Company recognized consulting expense of $50,000 as a result of issuance 
     of these shares.

     During the year ended March 31, 1997, the Company issued warrants valued at
     $240,351 pursuant to consulting agreements.  The Company recognized 
     consulting expense of $138,497 as a result of issuance of these warrants.


     Supplemental Noncash Investing Activities:

     Proceeds from cafe sales for the year ended March 31, 1997:

     Fixed assets, net          1,220,063
     Accounts receivable           41,252
     Inventory                     59,785
     
     Net cash proceeds         $1,321,000


        The accompanying notes are an integral part of these statements.


                                       45

<PAGE>

                       JAVA CENTRALE, INC., AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          March 31, 1997, 1996 and 1995


NOTE A - ORGANIZATION AND NATURE OF BUSINESS

     Java Centrale, Inc. (the Company) operates under the brand names of Java
     Centrale and Paradise Bakery (Paradise), a wholly owned subsidiary of the
     Company, (acquired in December 1995).  Java Centrale is primarily in the
     business of selling gourmet coffee products along with breakfast and lunch
     items.  Paradise is primarily in the business of selling freshly baked
     cookies, muffins, croissants and provides a full lunch menu.  Java Centrale
     operates franchisee owned locations and Paradise operates both company and
     franchisee owned locations.


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A summary of the significant accounting policies applied in the preparation
     of the accompanying consolidated financial statements of the Company
     follows.

     1.   PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of the Company
     and its wholly-owned subsidiary.  All significant intercompany transactions
     are eliminated.

     2.   REVENUE FROM FRANCHISE SALES

     REVENUE FROM AREA FRANCHISE SALES - Franchise fee revenue and costs are
     recognized on a pro rata basis as each unit is opened and all material
     services or conditions relating to those units have been substantially
     performed or satisfied by the Company.

     REVENUE FROM INDIVIDUAL FRANCHISE SALES - Franchise fee revenue and costs
     from individual franchise sales is recognized when all material services or
     conditions relating to the sale have been substantially performed or
     satisfied by the Company and the store is opened.

     REVENUE FROM EQUIPMENT SALES -  Revenue from equipment sales is recognized
     when the equipment is delivered to the franchisee.

     ROYALTY REVENUE - Royalty revenue is recorded as earned in accordance with
     specific terms of each franchisee agreement.

     3.   INVENTORIES

     Inventories, consisting principally of franchise related supplies and
     equipment, are stated at the lower of cost (first-in, first-out method) or
     market.

                                       46
<PAGE>

                       JAVA CENTRALE, INC., AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                          March 31, 1997, 1996 and 1995


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

     4.   PROPERTY AND EQUIPMENT

     Property and equipment is stated at cost less accumulated depreciation and
     amortization.  Depreciation and amortization of property and equipment is
     computed using the straight-line method over the estimated useful life of
     the asset or the lease term, where applicable, whichever is less.

     The estimated lives used in determining depreciation and amortization are:

          Tenant improvements                6.5 -  10 years
          Machinery and equipment            6   -  10 years
          Furniture and fixtures             3   -  10 years

     5.   INTANGIBLE ASSETS

     Intangible assets consist of goodwill and organizational costs.  All
     intangible assets are amortized on a straight line basis over the
     following years:

          Goodwill                                  15 years
          Organizational costs                       5 years

     The carrying value of intangible assets is periodically reviewed by the
     Company based on the expected future undiscounted operating cash flows of
     the related business unit.  Based upon its most recent analysis, the
     Company believes that no material impairment of intangible assets exist at
     March 31, 1997.

     6.   INCOME TAXES

     The Company utilizes an asset and liability approach in accounting for
     income taxes.  This approach requires the recognition of the deferred tax
     liabilities and assets for the expected future tax consequences of
     temporary differences between the financial statement carrying amounts and
     tax basis of assets and liabilities.  Deferred tax assets and liabilities
     are reflected at currently enacted income tax rates applicable to the
     period in which the deferred tax assets or liabilities are expected to be
     realized or settled.  As changes in tax laws or rates are enacted, deferred
     tax assets and liabilities are adjusted through the provision for income
     taxes.

     7.   CASH AND CASH EQUIVALENTS

     For purpose of the statement of cash flows, the Company considers all
     highly liquid debt instruments purchased with maturities of three months or
     less to be cash equivalents.


                                       47
<PAGE>

                       JAVA CENTRALE, INC., AND SUBSIDIARY


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                          March 31, 1997, 1996 and 1995


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

     8.   RECLASSIFICATIONS

     Certain reclassifications were made to the 1996 and 1995 financial
     statements in order to be in conformity with the 1997 presentation.

     9.   FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amounts of financial instruments, including cash, accounts
     receivable, accounts payable and short-term debt approximated fair value as
     of March 31, 1997 and 1996 because of the relatively short maturity of
     these instruments.  The carrying value of long-term debt approximated fair
     value as of March 31, 1997 and 1996 based upon current market rates for the
     same or similar debt issues.  As of March 31, 1997, notes receivable with a
     carrying value of $1,886,538 had an estimated fair value of $1,850,700
     based upon current market rates for notes with similar terms and credit
     quality.  As of March 31, 1996, notes receivable with a carrying value of
     $2,019,526 had an estimated fair value of $1,897,000 based upon current
     market rates for notes with similar terms and credit quality.

     10.  ESTIMATES USED IN FINANCIAL REPORTING

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

     The allowances for losses on impaired notes receivable and accounts
     receivable are estimates for which there is at least a reasonable
     possibility of a change within one year of the balance sheet date and that
     could have a material effect on the financial statements.

     11.  STOCK-BASED COMPENSATION

     In October 1995, the Financial Accounting Standards Board (FASB) issued
     SFAS No. 123, "Accounting for Stock Based Compensation."  This statement
     requires entities to disclose the fair value of their employee stock
     options, but permits entities to continue to account for employee stock
     options under Accounting Principles Board ("APB") Opinion No. 25,
     "Accounting for Stock Issued to Employees."  The Company has determined
     that it will continue to use the method prescribed by APB Opinion No. 25,
     which recognizes compensation cost to the extent of the difference between
     the quoted market price of the stock at the date of grant and the amount an
     employee must pay to acquire the stock.  The Company grants stock options
     to employees with an exercise price equal to the Company's quoted market
     price of the stock at the date of grant.  Accordingly, no compensation
     cost is recognized for stock option grants.  Disclosure requirements in
     accordance with SFAS No. 123 are included at note Q.


                                       48

<PAGE>

                       JAVA CENTRALE, INC., AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                          March 31, 1997, 1996 and 1995

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

     12.  LOSS PER SHARE

     Loss per common share is based upon the weighted average number of common
     and common equivalent shares outstanding. 

     For all periods presented, the options, warrants and Series B preferred
     stock are anti-dilutive.  Accordingly, only the common shares outstanding
     are included in the computation of weighted average shares outstanding, and
     no fully diluted loss per share is presented.

     13.  ADVERTISING

     All costs related to marketing and advertising are charged to operations in
     the year incurred and totaled $165,194, $420,000 and $423,000 for the years
     ended March 31, 1997, 1996 and 1995, respectively.

     14.  FUTURE EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT

     In February 1997, the Financial Accounting Standards Board issued Statement
     of Financial Accounting Standards No. 128, Earnings per Share (SFAS No.
     128).  SFAS No. 128 replaces the presentation of primary earnings per share
     (EPS) with a presentation of basic EPS.  It also requires dual presentation
     of basic and diluted EPS on the face of the income statement for all
     entities with complex capital structures and requires a reconciliation of
     the numerator and denominator of the basic EPS computation to the numerator
     and denominator of the diluted EPS computation.  Provisions of SFAS No. 128
     are effective for periods ending after December 15, 1997.  The potential
     impact of adopting SFAS No. 128 is expected to be immaterial.

NOTE C - REALIZATION OF ASSETS

     The accompanying financial statements have been prepared in conformity with
     generally accepted accounting principles, which contemplate continuation of
     the Company as a going concern.  However, the Company has incurred
     recurring net losses from operations and a net loss of approximately
     $5,300,000 for the year ended March 31, 1997.  In addition, the Company has
     used, rather than provided, cash in its operations.  At March 31, 1997, the
     Company is in default under a note agreement and is not in compliance with
     certain debt agreement covenants which could result in the notes becoming
     due and payable on demand.  These notes have been classified as current in
     the consolidated balance sheet.


                                       49
<PAGE>

                       JAVA CENTRALE, INC., AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                          March 31, 1997, 1996 and 1995

NOTE C - REALIZATION OF ASSETS - CONTINUED

     In view of the matters described in the preceding paragraph, recoverability
     of a major portion of the recorded asset amounts shown in the accompanying
     balance sheet is dependent upon continued operations of the Company, which
     is dependent upon the Company's ability to meet its financing requirements
     on a continuing basis and to succeed in its future operations.  The
     financial statements do not include any adjustments relating to the
     recoverability of recorded assets that might be necessary should the
     Company be unable to continue in existence.

     To meet its liquidity needs and continue existing operations, the 
     Company plans on obtaining new long-term financing, raising new equity 
     or making a significant sale of assets.  However, the Company cannot 
     make any assurances that their plan will be achieved.

NOTE D - FRANCHISE OPERATIONS

     At March 31, 1997, the Company has commitments from franchisees for 36
     franchisee owned cafes and carts which are not yet operational.  Under
     these commitments, the Company has received $520,000 in nonrefundable
     deposits, and notes receivable of $80,000.  No revenues have been
     recognized in the financial statements related to the cafes and carts not
     yet operational.  The notes receivable do not bear interest, and are due
     within twenty-four months of the note date.

     Related to these commitments, the Company has deferred revenues of $576,000
     at March 31, 1997, which will be recognized when the Company completes its
     initial commitments to the franchisees and the franchisee owned store is
     open for business.

     Under the franchise agreement, the Company receives an override on sales of
     various coffee products to its franchisees.  The Company, under a producer
     agreement, currently purchases all of its coffee products from one vendor.
     However, management believes that other sources of coffee products are
     readily available and that no economic dependency on one vendor exists.

NOTE E - SIGNIFICANT ACQUISITIONS

     On December 31, 1995, the Company acquired 100% of the outstanding shares
     of Paradise Bakery, Inc., (Paradise), pursuant to the terms of a Stock
     Purchase Agreement dated December 14, 1995 between the Company and Chart
     House Enterprises, Inc. (Seller).  Paradise's operations consist of seven
     bakery/cafe operations located in California and 44 franchised bakery/cafe
     operations located in California, Washington, Oregon, Arizona, Colorado,
     Oklahoma, Texas, Hawaii and Ontario, Canada.  The locations will continue
     to be operated under the name of Paradise Bakery.


                                       50
<PAGE>

                       JAVA CENTRALE, INC., AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                          March 31, 1997, 1996 and 1995

NOTE E - SIGNIFICANT ACQUISITIONS - CONTINUED

     The purchase price approximated $6,725,000, consisting of $5,375,000 in
     cash and $1,350,000 in a note payable.

     The transaction was accounted for as a purchase.  The purchase price was
     allocated to the fair value of Paradise's assets and liabilities and the
     excess of $3,691,649 was allocated to goodwill.  The goodwill will be
     amortized on the straight-line method over a period of 15 years.  The
     depreciable assets will be depreciated over the remaining useful life on a
     straight-line basis.  The assets and liabilities will be held in Paradise
     Bakery, Inc., as a wholly-owned subsidiary of the Company.

     On January 17, 1996, the Company merged with Founders Ventures, Inc.
     (Founders) pursuant to the terms of a merger agreement dated December 15,
     1995.  The consideration paid by the Company consisted of 431,853 shares of
     the Company.

     The transaction was accounted for as a purchase.  The purchase price was
     allocated to the fair value of Founder's assets and liabilities and the
     excess of $626,741 was allocated to goodwill.  The goodwill will be
     amortized on the straight-line method over a period of 15 years.  The
     depreciable assets will be depreciated over the remaining useful life on a
     straight-line basis.  The assets and liabilities will be held in Paradise
     Bakery, Inc., a wholly-owned subsidiary of the Company.

NOTE F - DISPOSAL OF ASSETS

     On December 13, 1996, the Company sold all operating locations of their Oh
     La La! Division pursuant to the terms of an asset purchase agreement.  The
     assets sold consisted of 11 Oh La La! cafes and carts located in San
     Francisco, California, the leases associated with each location, related
     equipment, inventory, accounts receivable and deposits.

     The consideration received for the sale of Oh La La! consisted of 233,333
     shares of the purchaser's preferred stock, $1,250,000 in cash and  $750,000
     in a convertible note receivable.  The preferred stock was issued with
     certain conversion rights into common shares, an 8% cumulative dividend and
     certain covenants and restrictions.  The convertible note calls for 9%
     interest paid monthly with the principal due in three years and certain
     conversion rights into common shares.  On March 31, 1997, the preferred
     stock and note receivable were converted to common shares (see Note J).

     On November 14, 1994 the Company entered into an agreement with Banyan
     Capital, Limited Partnership, Java Southeast Partners, L.P., and Java
     Southeast, Inc. to develop the Florida market.  Pursuant to the terms of
     the agreement, the Company issued 89,428 shares of common stock in exchange
     for 18.3% of the joint venture's outstanding shares.


                                       51
<PAGE>

                       JAVA CENTRALE, INC., AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                          March 31, 1997, 1996 and 1995

NOTE F - DISPOSAL OF ASSETS - CONTINUED

     The joint venture agreement was terminated effective March 1997.  The
     Company canceled 89,428 shares of common stock and recognized a loss on
     investment of $256,816.

     During the year ended March 31, 1997, the Company sold six Java 
     Company-owned cafes and two Paradise Company-owned cafes to franchisees. 
     The Company is in the process of assigning an equipment lease in the 
     amount of $90,275 to the purchaser of a Java cafe pursuant to the 
     purchase agreement.  Until the assignment process is complete, the 
     Company is still liable for the lease payments.

NOTE G - PROPERTY AND EQUIPMENT

     Property and equipment at March 31, consist of the following:

                                                       1997            1996
                                                  ------------    ------------
       Office furniture and equipment             $    384,460    $    361,873
       Tenant improvements                           2,044,554       3,196,634
       Cafe equipment                                1,243,470       2,798,701
                                                  ------------    ------------
                                                     3,672,484       6,357,208

       Less accumulated depreciation and
         amortization                                 (891,326)       (619,228)
                                                  ------------    ------------
                                                  $  2,781,158    $  5,737,980
                                                  ------------    ------------
                                                  ------------    ------------

NOTE H - NOTES RECEIVABLE

      Notes receivable at March 31, consist of the following:

                                                         1997           1996
                                                  ------------    ------------
       Equipment billings receivable (net of
         allowance of $51,800 in 1997)             $     6,381     $   317,880
       Advertising fees receivable                       9,399          60,000
       Franchise fees receivable                        80,000         286,000
       Notes from franchisees                        1,197,192         920,445
       Note from joint venture                               -         200,000
       Note from sale of Oh La La!                     145,000               -
                                                  ------------    ------------
                                                     1,437,972       1,784,325
       Less current portion                            448,369         485,751
                                                  ------------    ------------
                                                    $  989,603     $ 1,298,574
                                                  ------------    ------------
                                                  ------------    ------------

      Management has determined that approximately $844,500 of the notes from
      franchisees are impaired according to SFAS 114, ACCOUNTING BY CREDITORS
      FOR IMPAIRMENT OF A LOAN.  Notes from franchisees are recorded net of an
      impairment reserve of $156,000.


                                       52
<PAGE>

                       JAVA CENTRALE, INC., AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                          March 31, 1997, 1996 and 1995

NOTE I - INTANGIBLE ASSETS

     Intangible assets at March 31, 1997 consist of the following:

                                                   Accumulated
                                       Cost        Amortization           Net
                                   ------------    ------------    ------------
          Goodwill                 $  4,408,195    $   367,350     $  4,040,845
          Organizational cost            31,123         31,123                -
                                   ------------    ------------    ------------
          Total                    $  4,439,318    $   398,473     $  4,040,845
                                   ------------    ------------    ------------
                                   ------------    ------------    ------------

     Intangible assets at March 31, 1996 consist of the following:

                                                   Accumulated
                                       Cost        Amortization           Net
                                   ------------    ------------    ------------
          Goodwill                 $  5,575,006    $   143,338     $  5,431,668
          Organizational cost            35,658         31,123            4,535
          License rights                100,000         10,000           90,000
                                   ------------    ------------    ------------
          Total                    $  5,710,664     $  184,461     $  5,526,203
                                   ------------    ------------    ------------
                                   ------------    ------------    ------------

NOTE J - INVESTMENT

     In conjunction with the sale of Oh La La! (see note F), the Company 
     received 233,333 shares of the purchaser's convertible preferred stock 
     and a convertible note receivable in the amount of $750,000.   On March 
     31, 1997,  the Company and the purchaser agreed that the Company  would 
     cancel $250,000 of the note  for the assumption of certain liabilities 
     of the Company, accelerate the payment of $145,000 to May 1997 and 
     exchange the remaining note of $355,000 and the convertible preferred 
     stock for 273,333 shares of the purchaser's common stock.  The Company 
     recognized a loss on the exchange and conversion of the note receivable 
     in the amount of $275,000.  Fair value of the common stock at the date 
     of conversion was determined through recent common stock issuances of 
     the purchaser to third parties.

     At March 31, 1997, the Company's investment consists of a 30 percent 
     interest in Good Food Fast Companies (GFF).  At this date, GFF's total 
     assets, liabilities and net income for the three months then ended were 
     approximately $4,500,000, $3,000,000 and $21,000, respectively, based on 
     information provided by GFF.  The Company's Chairman of the Board was a 
     director of GFF until his resignation from the GFF board on June 6, 1997.

                                       53
<PAGE>

                       JAVA CENTRALE, INC., AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                          March 31, 1997, 1996 and 1995

NOTE K - ACCRUED LIABILITIES

     Accrued liabilities at March 31, consist of the following:

                                            1997                1996
                                       -----------          ----------
          Accrued payroll               $  133,640          $  243,948
          Accrued payroll taxes             74,997             142,973
          Settlement expense               170,000                   -
          Accrued interest                 100,936              11,074
          Other                            140,851             328,249
                                       -----------          ----------
                                       $   620,424          $  726,244
                                       -----------          ----------
                                       -----------          ----------

NOTE L - RELATED PARTIES

     Baycor Venture, Inc. (Baycor) is a wholly owned subsidiary of Baycor 
     Capital Inc., of Alberta, Canada which owns several other Canadian 
     corporations.  A principal shareholder of Baycor Capital, Inc. is Chairman
     of the Board of the Company.  The individual was paid $75,000, $94,328 and
     $99,603 under the terms of an employment agreement during the years 
     ended March 31, 1995, 1996 and 1997, respectively.  The Company also 
     reimburses Baycor for travel and entertainment expenses incurred by 
     officers of Baycor on behalf of the Company.  At March 31, 1997 and 
     1996, the Company owed Baycor $44,295 and $22,637, respectively, for 
     expenses reimbursement and compensation.

     During the year ended March 31, 1997, the Company received a bridge loan
     from Alta Petroleum, Inc. (Alta).  Alta Petroleum, Inc.'s vice president is
     a board member of the Company.  The  balance outstanding at March 31, 1997
     is $300,000, which is due May 31, 1997.  Subsequent to year end, the
     Company received an additional $275,000.

     At March 31, 1997 and 1996, the Company had notes receivable outstanding 
     of $185,000 from Baycor and $39,900 and $50,200, respectively, from a 
     vice president of the Company.

NOTE M - LONG-TERM DEBT

     Long-term debt at March 31, consists of the following:       1997      1996
     Note payable to Chart House Enterprises, Inc.                ----      ----
          The note bears interest at ten percent per
          annum and is payable interest only for the
          first twelve months beginning February 1, 1996,
          and thereafter principal payments shall be
          payable in eight equal quarterly payments in
          amounts sufficient to fully amortize the entire
          principal balance over a period of eight
          quarters.  The note is collateralized by
          franchisee note receivables. The Company was in
          default as of March 31, 1997.                     $  836,282 $ 965,000


                                       54

<PAGE>

                       JAVA CENTRALE, INC., AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                          March 31, 1997, 1996 and 1995


NOTE M - LONG-TERM DEBT - CONTINUED

                                                                1997      1996
                                                               -------   ------
     Note payable to Chart House Enterprises, Inc.,
        due April 30, 1997.  The note bears interest
        at ten percent per annum and is payable
        quarterly in arrears.  The note is
        collateralized by certain Company owned
        stores.                                                 -       385,000

     Loan payable to Sanwa Bank, due March 31, 1996.
        The loan bears interest at 9.3125% and is
        collateralized by certain Company owned stores.         -       350,000


     Tenant improvement loans with terms calling for
        monthly principal and interest payments over
        a period ranging from one to ten years with
        interest rates ranging from 7.5 to 11 percent.        88,836    217,946

     Note payable to Alta Petroleum, related party,
        due May 31, 1997.  The note bears interest
        at 14% and is collateralized by all Paradise
        Bakery, Inc. shares.  This balance is outstanding
        as of July 8, 1997.                                  300,000        -

     Loan payable to Imperial Business Credit, Inc.
        The note bears interest at 12.551% per annum.
        Payments of $20,304 are due monthly.  The loan is
        collateralized by all equipment, receivables and
        inventory of the Paradise Company owned stores.
        The loan is subject to certain requirements and
        covenants of which the Company is not in
        compliance.                                          720,370        -
                                                          ---------- -----------
                                                           1,945,488   1,917,946

         Less current maturity                             1,945,488     746,785
                                                          ---------- -----------
                                                          ---------- -----------
                                                          $    -     $ 1,171,161
                                                          ---------- -----------
                                                          ---------- -----------


                                       55
<PAGE>

                       JAVA CENTRALE, INC., AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                          March 31, 1997, 1996 and 1995

NOTE N - PREFERRED STOCK

     The Company has authorized 25,000,000 shares of no par Series B Redeemable
     Preferred Stock (Series B).  Holders of Series B stock are entitled to
     receive dividends and any other distribution when and as declared by the
     Board of Directors of the Company out of the assets of the Company that are
     legally available therefore, at the rate of $0.01 per share per annum and
     no more, prior to the payment of any distributions to holders of the Common
     Shares.  Dividends on the Series B stock shall be payable semi-annually on
     September 30 and March 31 of each year.  In the event of any liquidation,
     dissolution, or winding up of the Company, either voluntarily or
     involuntarily, the holders of Preferred Stock shall receive an amount equal
     to $.20 per share and all accrued and unpaid dividends, before any amount
     shall be paid to the holders of the Common Shares.

     The holders of Series B stock shall be entitled to vote only upon failure
     of the Company to pay dividends if the Company is legally entitled to make
     such payment.  The Series B stock shall be convertible and may also be
     redeemed at any time after March 31, 1995, at the request of the holder or
     the Company, at an amount equal to 110% of the contributed capital per
     share of Preferred Stock plus all accrued and unpaid dividends.  In
     addition, on or before March 31, 1995, the Company may redeem the Series B
     stock at an amount equal to 115% of contributed capital per share plus all
     accrued and unpaid dividends in the event of a change of control of the
     Company or a public offering of the Common Shares.  There was no Preferred
     Stock issued or outstanding at March 31, 1996 and 1997.

NOTE O - CONVERTIBLE DEBT

     The Company issued through private placements, convertible notes in the
     amount of $3,500,000.  The first note in the amount of $2,000,000 is due on
     December 15, 1997 with interest payable quarterly beginning on March 15,
     1996 at the rate of 8% per year.  The note is convertible into common stock
     of the Company after February 28, 1996 under certain terms and conditions.
     As of March 31, 1997, $900,000 had been converted into 1,276,593 common
     shares, leaving convertible notes payable of $1,100,000.

     The second series of notes in the amount of $1,500,000 are due on January
     29, 1998 with interest payable quarterly beginning on March 15, 1996 at the
     rate of 8% per year.  These are convertible into common stock of the
     Company after April 12, 1996 under certain terms and conditions.  As of
     March 31, 1997, $1,154,250 had been converted into 2,034,590 common shares,
     leaving convertible notes payable of $345,750.

     The investors have the option to convert any part of the outstanding and
     unpaid principal amount of the notes at any time, or from time to time, at
     the conversion price stipulated in the note agreement.


                                       56
<PAGE>

                       JAVA CENTRALE, INC., AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                          March 31, 1997, 1996 and 1995


NOTE P - STOCKHOLDERS' EQUITY

     1.   STOCK SPLIT

     On June 8, 1994, the Company declared a five-for-four stock split effected
     in the form of 25% stock dividend on its Common Stock, without par value,
     to be payable on July 15, 1994 to shareholders of record on June 30, 1994.
     On or prior to June 10, 1994, employees and officers holding securities,
     including warrants and options, waived their rights to receive the stock
     split and also waived the impact such stock split would have on any options
     or warrants held by the security holders, including, but not limited to,
     any anti-dilution provisions relating to such options and warrants.  All
     references in the financial statements to number of shares and per share
     data of the Company's common stock have been adjusted as appropriate to
     reflect this stock split.

     2.   ESCROW AGREEMENT

     Certain stockholders, directors and officers of the Company (the "Security
     Holders") placed an aggregate of 855,300 of their currently outstanding
     Company shares in escrow (the "Escrowed Shares") in connection with the
     Company's public offering of its Common Stock in May of 1994.  The Escrow
     Agreement provides that the Escrowed Shares be released to the Security
     Holders if the Company achieves certain earnings requirements during the
     fiscal years ended March 31, 1995, 1996, 1997 and 1998.  The Company has
     not achieved the requirements during its 1995, 1996 or 1997 fiscal years.
     In the event that the Company does not meet any of the earnings
     requirements by March 1998, all of the escrowed shares shall be released in
     March 1999.  If any Security Holder exercises warrants or options to
     acquire additional Common shares of the Company ("Additional Shares"), one-
     third of such Additional Shares must be placed in escrow and will be
     released pursuant to the Escrow Agreement as if they were Escrowed Shares.

NOTE Q - STOCK OPTIONS AND WARRANTS

     1.   INCENTIVE STOCK OPTION PLAN

     Effective November, 1993, the Company adopted a Stock Option Plan (the
     "1993 Plan") under which options to purchase a maximum of 1,250,000 shares
     of Common Stock may be granted to selected officers, directors and key
     full-time salaried employees of the Company.  Under the 1993 Plan, options
     may, at the discretion of the Board of Directors, be granted either as
     Incentive Stock Options (as defined in the Internal Revenue Code of 1986,
     as amended) or as Nonstatutory Stock Options.  The options will have an
     exercise price of not less than the fair market value of the Common Stock
     on the date the option is granted and, unless otherwise provided by the
     Board of Directors, will vest over a five-year period, with


                                       57
<PAGE>

     20% of the shares exercisable at the end of each year the grantee has
     completed as a director or employee of the Company.






                                       58



<PAGE>

                         JAVA CENTRALE, INC., AND SUBSIDIARY

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                            March 31, 1997, 1996 and 1995

NOTE Q - STOCK OPTIONS AND WARRANTS - CONTINUED

    The fixed stock option plan is accounted for under APB Opinion No. 25
    and related Interpretations.  Accordingly, no compensation cost has been
    recognized for the plan.  Had compensation cost for the plan been 
    determined based on the fair value of the options at the grant dates 
    consistent with the method of SFAS No. 123, the Company's loss and net 
    loss per share would have been increased to the pro forma amounts 
    indicated below.

                                                       1997           1996
                                                 -------------   -------------

          Net loss         As reported           $ (5,326,192)   $  (3,966,426)
                           Pro forma             $ (5,718,452)   $  (4,083,046)
          Net loss         As reported                 $(.46)    $        (.61)
           per share       Pro forma                   $(.50)    $        (.63)

    The fair value of each option grant is estimated on the date of grant
    using the Black-Scholes option pricing model with the following
    weighted-average assumptions used for grants in the years ended March 31,
    1997 and 1996: expected volatility of 80 percent; risk-free interest rate
    of 6.05 and 5.8 percent, respectively; and expected lives of 1.5 and 1.0
    years, respectively.

    On July 31, 1996, the Company modified the exercise price of all
    outstanding options from $1.75 - $2.00 per share to $.75 per share.  Also
    on July 31, 1996, the Company canceled the stock options under the 1993
    Plan for certain directors and officers and issued 1,200,000 warrants
    to those individuals.  The warrants are included in the table below.

    A summary of the status of the Company's fixed stock option plan and
    warrants issued to directors and officers as of March 31, 1997 and 1996
    and changes during the years then ended are presented below. 

<TABLE>
<CAPTION>

                                                   1997                          1996
                                        ---------------------------  -----------------------------
                                                       WEIGHTED                        Weighted
                                                        AVERAGE                         Average
                                                        EXERCISE                        Exercise
                                         SHARES         PRICE              Shares        Price
                                        ----------   -----------     -----------    ---------------
<S>                                      <C>          <C>             <C>             <C>
   Outstanding at beginning of year     1,100,000    $      1.89        298,750      $        2.56
   Granted
       Options                          1,183,500    $       .75      1,100,000      $        1.89
       Warrants                         1,200,000    $       .75              -      $           -
   Exercised                                    -    $         -              -      $           -
   Forfeited                           (1,241,000)   $      1.76       (298,750)     $        2.56
                                       ------------                    ---------
   Outstanding at end of year           2,242,500    $       .75      1,100,000      $        1.89

</TABLE>


                                          59

<PAGE>

                         JAVA CENTRALE, INC., AND SUBSIDIARY

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                            March 31, 1997, 1996 and 1995

NOTE Q - STOCK OPTIONS AND WARRANTS - CONTINUED

<TABLE>
<CAPTION>
       <S>                                   <C>            <C>               <C>             <C>
       Options and warrants
         exercisable at year end             1,719,014      $     .75         87,000          $1.89
       Weighted-average fair value of
         options and warrants granted
         during the year                                    $     .20                   $       .62

</TABLE>

    The following information applies to options and warrants issued to
    directors and officers outstanding at March 31, 1997:

         Number outstanding                          2,242,500
         Range of exercise prices                    $     .75
         Weighted-average exercise price             $     .75
         Weighted-average remaining life                  3.25

    2.   WARRANTS

    In July 1993, the Company granted warrants to purchase 225,000 shares of
    common stock at $1.60 per share to management consultants.  The warrants
    expire at the end of five years.

    In May 1994, the Company granted warrants to purchase 150,000 shares of
    common stock at $9.90 per share to the underwriter group involved with
    the initial public offering.

    In July 1995, the Company granted warrants to purchase 682,000 shares of
    common stock at $2.58 per share for consulting services.  The warrants
    expired on July 2, 1997.

    In August 1995, the Company granted warrants to purchase 150,000 shares
    of common stock at $1.50 per share for consulting services.  The warrants
    expire in August 2002.

    In January 1996, the Company granted warrants to purchase 100,000 shares
    of common stock at $2.75 per share for consulting services.  The warrants
    expire in January 2001.

    In July 1996, the Company granted warrants to purchase 300,000 shares of
    common stock at a resulting exercise price of $.28125 per share.  The
    warrants were granted in conjunction with a debt issuance and they expire
    June 30, 2000.

    In September 1996, the Company granted warrants to purchase 769,230
    shares of common stock at $1.25 per share in conjunction with a stock
    subscription agreement. The warrants expire September 23, 1998.

    In October 1996, the Company granted warrants to purchase 50,000 shares
    of common stock at a resulting exercise price of $.28125 per share.  The
    warrants were granted in conjunction with a debt issuance and they expire
    June 30, 2000.

                                          60

<PAGE>

                         JAVA CENTRALE, INC., AND SUBSIDIARY

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                            March 31, 1997, 1996 and 1995


NOTE Q - STOCK OPTIONS AND WARRANTS - CONTINUED

    In February 1997, the Company issued the following warrants for consulting
    services:

         (a)  warrants to purchase 300,000 shares of common stock at 60
              percent of the prior day's closing bid price per share and
              warrants to purchase 300,000 shares of common stock at 75
              percent of the prior day's closing bid price per share; these
              warrants are effective for 120 days, and 525,000 of such
              warrants were exercised subsequent to March 31, 1997.

         (b)  warrants to purchase 600,000 shares of common stock at $.75 per
              share effective for 120 business days following the exercise or
              expiration of all of the warrants described in (a), above.

         (c)  warrants to purchase 600,000 shares of common stock at $.75 per
              share effective for 120 business days following the exercise or
              expiration of all of the warrants described in (b), above.

NOTE R - LEASE COMMITMENTS, RENT EXPENSE, AND DEPOSIT

    The Company has entered into a five and one-half year lease of office
    space for its corporate headquarters commencing on March 31, 1996, and
    ending July 31, 2001.

    Future minimum rents are as follows for each of the years ending March 31,:

                                                   Capital         Operating
                                                    Lease            Lease
                                               -------------    --------------

    1998                                       $     42,240     $   1,408,740
    1999                                             42,240         1,258,921
    2000                                             42,240         1,165,787
    2001                                             38,720           896,444
    2002                                                  -           590,201
    Thereafter                                            -           768,784
                                               ------------     -------------

    Future minimum lease payments                   165,440    $   6,088,877
                                                               -------------
                                                             -------------

    Amounts representing interest                    42,005
                                                 ------------

    Present value of minimum lease payments    $    123,435
                                               ------------
                                               ------------

                                          61

<PAGE>

                         JAVA CENTRALE, INC., AND SUBSIDIARY

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                            March 31, 1997, 1996 and 1995


NOTE R - LEASE COMMITMENTS, RENT EXPENSE, AND DEPOSIT - CONTINUED

    All amounts due under capital lease obligations are for cafe equipment
    with a net book value of approximately $123,000.

    In addition to minimum rents, the Company is required to pay its share of
    taxes, insurance, common area maintenance, and percentage rents of 1% to
    2% of sales.

    Rent expense included in these financial statements for facilities leased
    by the Company is $1,970,428, $1,214,064, and $114,090 for the applicable
    years ended March 31, 1997, 1996 and 1995, respectively.

NOTE S - INCOME TAXES

    As of March 31, 1997, the Company has accumulated net operating losses of
    approximately $12,800,000.  These losses can be carried forward and
    applied against future income of the Company for federal and state income
    tax purposes.  The net operating losses will begin to expire in 2008 for
    federal purposes and in 2002 for state purposes, if not previously
    utilized.  For state income tax purposes, the use of the net operating
    loss is limited to approximately 50% of the federal net operating loss.
    Under U.S. tax rules, the Company, as a result of the Paradise
    acquisition is subject to certain limitations as to the use of net
    operating losses in any one year.  A valuation allowance totally offsets
    the balance of the deferred tax asset related to these net operating
    losses, as it is more likely than not that the Company will not realize
    the deferred tax assets.

                                              1997                 1996
                                        ---------------    --------------
       Deferred tax assets:
         Net operating losses           $    5,120,000     $     2,800,000
         Temporary differences:
            Franchise fees collected           208,000             287,000
            Depreciation and other              40,000              20,000
         Valuation allowance                (5,368,000)         (3,107,000)
                                        --------------      --------------

                                        $            -     $             -
                                       ---------------     ---------------
                                       ---------------     ---------------


                                          62

<PAGE>

                         JAVA CENTRALE, INC., AND SUBSIDIARY

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                            March 31, 1997, 1996 and 1995


NOTE T - COMMITMENTS

    The Company has employment agreements with five key employees, with
    annual salary requirements totaling $460,000.  Annual increases are tied
    to economic indicators, and include potential bonuses at the discretion
    of the Board of Directors. 

    The Company is involved in litigation in the normal course of business.
    Management believes that such litigation is without merit and the
    disposition of such litigation would not have a material effect on the
    Company.

NOTE U - SIGNIFICANT FOURTH QUARTER ADJUSTMENTS

    As of March 31, 1997, an adjustment of approximately $375,000 was 
    recorded to establish an allowance for uncollectible accounts, $191,000 
    of which is related to events that occurred in the fourth quarter.

    During the year ended March 31, 1997, the Company issued warrants in 
    connection with consulting services.  The fair value of the warrants was 
    determined to be approximately $250,000.  An adjustment of approximately 
    $140,000 and $110,000, respectively, was made as of March 31, 1997 to 
    record consulting and prepaid expenses relating to this amount.  Warrants 
    with a fair value of $71,600 were issued in the fourth quarter and are 
    included in the above amount.          

    As of March 31, 1997 the Company recorded an adjustment to the value of 
    the 233,333 shares of GFF preferred stock in the amount of approximately 
    $230,000 (see Note J).

    As of March 31, 1997, an adjustment of $113,000 was recorded to amortize 
    deferred debt issuance costs as a result of the debt not being converted. 
    This amount is included in interest expense.

NOTE V - SUBSEQUENT EVENTS

    In May 1997, the Company closed its Java Centrale Palo Alto location.  An
    impairment write-down of approximately $283,000 was recorded for this
    location as of March 31, 1997.

    In July 1997, the Company agreed to restructure $1,000,000 of the 
    convertible debt into a note due no later than January 1998.  The shares of
    Paradise Bakery, Inc. were pledged as collateral and an additional $250,000
    was added to the balance of the note to eliminate its conversion feature.

                                      63

<PAGE>

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

         Not Applicable.


                                       PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
 <S><C>
         NAME                               AGE                 POSITION WITH COMPANY

         Richard D. Shannon                 51                  Director, Chairman of the Board

         Gary C. Nelson                     54                  Director, President and Chief Executive Officer

         Bradley B. Landin                  46                  Senior Vice President Operations

         Thomas A. Craig                    64                  Vice President -- Marketing and Real Estate

         Steven J. Orlando                  46                  Vice President, Chief Financial Officer and Secretary

         Kevin R. Baker                     48                  Director

         Lyle P. Edwards                    49                  Director


</TABLE>

RICHARD D. SHANNON has been a Director of the Company since its incorporation
in March 1992 and became Chairman in January 1994.  Mr. Shannon also served
as Secretary of the Company from its inception until January 1994.  Mr.
Shannon currently devotes approximately 80% of his time to his duties with
the Company.  In February 1990, Mr. Shannon, together with Kevin R. Baker,
also a Director of the Company, founded Baycor Capital Inc. ("Baycor
Capital"), a private merchant bank based in Calgary, Canada.  Baycor Capital
owns 100% of the issued and outstanding shares of Baycor Ventures, the
largest single shareholder of the Company.  Mr. Shannon is also the President
of Baycor Ventures.  Mr. Shannon is a director of a number of privately held
companies in Canada.  During the period 1978 through 1989, Mr. Shannon
practiced law at Burnet, Duckworth & Palmer, a Calgary-based law firm, which
operated joint venture offices in Ottawa, New York, Hong Kong, London and
Geneva.  Mr. Shannon graduated from the University of Alberta, Canada where
he obtained a BA in Economics and an LLB from the Faculty of law.

                                          64

<PAGE>


GARY C. NELSON, a founding shareholder of the Company, has been a Director,
President and Chief Executive Officer of the Company since its incorporation
in March 1992.  During the period from November 1991 until the Company's
incorporation in March 1992, Mr. Nelson devoted his time to the planning
development and initial funding of the Company's incorporation and
commencement of operations.  From September 1990 through October 1991 Mr.
Nelson was both Senior Vice President and President International Division
and a founding shareholder of CNY International, a company, which was formed
to acquire and operate the retail businesses of American Confectionery
Corporation.  From March 1990 until August 1990, Mr. Nelson was Vice
President of American Confectionery Corporation, a company which both owned
and franchised over two hundred candy and yogurt outlets.  From February 1983
until February 1990 Mr. Nelson was a founding shareholder and served as
President and Chief Executive Officer of publicly traded J. Higby's, Inc. and
its privately held predecessor, Gamma Industries, whose business was
franchising J. HIGBY'S YOGURT AND TREAT SHOPPES in the United States and
internationally in Canada and five countries in southeast Asia.  Mr. Nelson
holds a BA in Business Administration from the California State University.

BRADLEY B. LANDIN, a founding shareholder has been a Director and Vice
President Operations of the Company since its incorporation in March 1992.
From September 1990 until February 1992, Mr. Landin was Vice President
International Division of CNY International, a company that was formed to
acquire and operate the retail businesses of American Confectionery
Corporation.  From March 1990 through August 1990, Mr. Landin was Vice
President International Development of American Confectionery Corporation,
which both owned and franchised over two hundred candy and yogurt outlets.
From September 1986 until February 1990, Mr. Landin held various positions
with publicly traded J. Higby's Inc., the franchisor of J. HIGBY'S YOGURT AND
TREAT SHOPPES where he was responsible for franchised and company-owned
operations, product development, store planning and turn-key construction and
equipment programs.  Mr. Landin did undergraduate work in business at both
Loyola University in Chicago and the University of Wisconsin, Green Bay
Campus.

THOMAS A CRAIG, a founding shareholder, has been Vice-President--Marketing
and Real Estate of the Company since its incorporation in March 1992.  Mr.
Craig has 29 years of experience in advertising, design, marketing and real
estate.  From November 1987 until the incorporation of the Company in March
1992, he was associated with Century 21, a real estate brokerage firm in
Carmichael, California specializing in the sale and leasing of new and
existing commercial properties.  From May 1962 through July 1987 Mr. Craig
served as president of two advertising and marketing firms located in
Sacramento, California.  Mr. Craig is a graduate of the Hollywood Center of
Art and Design in Hollywood, California.

STEVEN J. ORLANDO has been the Company's Chief Financial Officer since July
of 1994.  Since 1988, Mr. Orlando has acted as a business consultant to
various companies in the Sacramento and Los Angeles, California areas and
served as the President of RJN Enterprises, a private investment company.
From 1977 to 1988, Mr. Orlando was the Chief Financial Officer for Sierra
Spring Water Company, a publicly traded bottled water company based in
Sacramento, California, with operations in several regions around the
country. Mr. Orlando received a B.S degree in accounting from California
State University, Sacramento, in 1974, and has been a Certified Public
Accountant since 1977.  In addition to his responsibilities with the Company,
Mr. Orlando also

                                          65

<PAGE>

serves as a director of and consultant to various companies, including RJN
Enterprises, a private investment company based in Sacramento, California,
and Pacific Crest Capital, a Thrift and Loan Company based in Los Angeles,
California.

KEVIN R. BAKER has been a Director of the Company since its incorporation in
March 1992.  Since February 1990, Mr. Baker has been the President of Baycor
Capital, a private merchant bank based in Canada, which is the parent
corporation of Baycor Ventures, the majority shareholder of the Company.
Baycor Capital holds interests in a diversified portfolio of companies and
assets in Canada and the United States.  During the period 1971 to January
1990, Mr. Baker practiced law at MacKimmie Matthews and Burnet, Duckworth &
Palmer, two law firms in Calgary, Canada.  Mr. Baker is a director of a
private number of companies in Canada.  Mr. Baker is also a principal in a
number of ventures in the oil and gas, real estate, oil field service and
hospitality industries.  Mr. Baker also owns an 850-seat restaurant in
Calgary that has been in operation for more than 20 years.  Mr. Baker
graduated from the University of Alberta, Canada where he obtained a BA in
Economics and an LLB from the Faculty of Law.

LYLE EDWARDS, is a businessman involved in the ownership and operation of a
number of real estate and other business ventures in Canada and the United
States.  Mr. Edwards serves as a director of a number of privately held
companies in Canada and the United States and is also director of one
publicly listed company in Canada.  Since 1987, Mr. Edwards has been Chief
Executive Officer of Westwood Financial Services, Ltd.  During the period
1974 through 1987, Mr. Edwards served as an officer, director and ultimately
President of Highfield Corp., Ltd., a major diversified investment
corporation operating offices in several of the major cities in Western North
America.  Mr. Edwards was admitted to the Canadian Institute of Chartered
Accountants and was associated with Deloite Haskins and Sells, the
predecessor firm of Deloitte & Touche, from 1970 to 1974.  Mr. Edwards
graduated from the University of Alberta, Canada where he obtained a Bachelor
of Science and Bachelor of Commerce.

Two of the Company's directors and officers, Gary C. Nelson and Bradley B.
Landin, were former vice presidents of American Confectionery Corporation
and/or of a subsidiary thereof (collectively, "ACC").  Their duties involved
only the retail, franchising and marketing operations of ACC.  They had no
responsibility for ACC's candy manufacturing business, which it carried on
through Pacific Candy Company, another subsidiary.  In September 1990, they
participated in a successful management buy-out of ACC's retail and
franchising operations, which included Morrow's Fine Candies, House of
Almond's, the House of Almond's Catalog, and J. HIGBY'S YOGURT AND TREAT
SHOPPES.  They both resigned from ACC to help run the new enterprise. ACC
thereafter remained in business only as a candy manufacturer, through Pacific
Candy Company, and under substantially different management.  Approximately
six months after Mr. Nelson and Mr. Landin resigned, ACC and its subsidiaries
all filed voluntary petitions for reorganization under Chapter 11 of the
Bankruptcy Code (Case Nos. SB-91-13970, 13971 and 13972, U.S. Bankruptcy
Court, Central District of California, filed April 12, 1991).  The
candy-manufacturing business encountered liquidity problems in 1991, leading
ACC to seek protection from creditors.  Mr. Nelson and Mr. Landin had no part
in that decision or in the problems of the candy business, which led to it.
On June 16, 1992, ACC's plan of reorganization was confirmed and approved by
the bankruptcy court.  As of that date, ACC emerged from its Chapter 11
bankruptcy proceedings and has now resumed operations as a national wholesale
candy manufacturer.

                                          66

<PAGE>

               Directors of the Company are elected at each annual meeting of
the shareholders of the Company and hold office until the next annual
meeting; provided, however, that if any annual meeting is not held or the
directors are not elected at any annual meeting, they may be elected at any
special shareholders' meeting held for that purpose.  Each director,
including a director elected to fill a vacancy or elected at a special
shareholders' meeting, holds office until the expiration of the term for
which elected and until a successor has been elected and qualified. Officers
of the Company are appointed by its Board of Directors, and serve at the
pleasure of the Board.

               The Company is not aware of any family relationship, among its
Directors and/or executive officers.

ITEM 11.       EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

               The following table sets forth the cash compensation paid by
the Company to, as well as any other compensation paid to or earned by, the
Company's Chief Executive Officer and the four most highly compensated
executive officers other than the Chief Executive Officer during each of the
fiscal years ended March 31, 1995, 1996 and 1997.  The Company's President
and Chief Executive Officer, Mr. Gary C. Nelson, was the only officer of the
Company whose total annual salary and bonus exceeded $100,000 during the 1995
and 1997 fiscal years.  The Company's President and Chief Executive Officer,
Mr. Gary C. Nelson, the Company's Chief Financial Officer, Mr. Steven J.
Orlando, and the Company's Chairman of the Board, Mr. Richard Shannon, were
the officers of the Company whose total annual salary and bonus exceeded
$100,000 during the 1996 fiscal year.

<TABLE>
<CAPTION>
                                                    Summary Compensation Table

                                                  Annual Compensation               Long Term Compensation
                                      -------------------------------------       ---------------------------
                                                                                             Awards
                                                                                           ----------
                                                                                                  Securities
   Name of Individual                                                  Other       Restricted     Underlying       All
    and Principal         Fiscal                                       Annual        Stock         Options/        Other
     Position             Year        Salary            Bonus       Compensation     Awards         SARS(#)    Compensation
---------------         --------     ---------        --------     --------------    ------       ----------   ------------
<S>                     <C>          <C>              <C>          <C>               <C>          <C>          <C>
Gary C. Nelson           1997        $121,634         $  -0-           $-0-           None            -0-           $-0-
  President/Chief        1996        $158,065         35,000            -0-           None        167,000            -0-
  Executive  Officer     1995        $147,538            -0-            -0-           None            -0-            -0-

Steven J. Orlando        1997         $89,900         $  -0-           $-0-           None            -0-           $-0-
  Chief Financial        1996          97,050         35,000            -0-           None        175,000            -0-
  Officer                1995          78,431            -0-            -0-           None        100,000            -0-

Richard Shannon          1997         $99,603         $  -0-           $-0-           None            -0-           $-0-
  Chairman of            1996          94,328         35,000            -0-           None        174,250            -0-
  the Board              1995          75,000            -0-            -0-           None            -0-            -0-



</TABLE>

   COMPENSATION PURSUANT TO PLANS

         STOCK OPTION PLAN.  Effective November 1993, the Board of Directors
of the Company (the


                                          67
<PAGE>

"Board") adopted the Java Centrale, Inc. Stock Option Plan (the "Stock Option
Plan").  Under the terms of the Stock Option Plan, options to purchase up to
500,000 Common Shares may be granted to officers, key employees and
non-employee directors of the Company.  In September 1995, the Company
proposed to shareholders an amendment to increase the option plan to
1,250,000 common shares.  The amendment was approved and the Company has
amended the plan to a total of 1,250,000 common shares.  Under the Stock
Option Plan, the Board, or a committee appointed by the Board, is authorized
to grant options which are intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code ("incentive stock options") to
employees (including employee-directors) of the Company, and to grant options
not intended to qualify as incentive stock options ("non-qualifying stock
options") to employees and non-employee directors of the Company, and to
determine the participants, the number of options to be granted and other
terms and provisions of each option.

         The exercise price of any incentive stock option granted under the
Stock Option Plan may not be less than 100 percent of the fair market value
of the Common Shares of the Company at the time of the grant.  In the case of
incentive stock options granted to holders of more than ten percent of the
voting power of the Company, the exercise price may not be less than 110% of
the fair market value of the Common Shares, nor shall the option by its terms
be exercisable more than 5 years after the date the option is granted.

         Under the terms of the Stock Option Plan, the aggregate fair market
value (determined at the time of grant) of shares issuable upon exercise of
incentive stock options exercisable for the first time during any one
calendar year may not exceed $100,000.  Options granted under the Stock
Option Plan become exercisable in whole or in part from time to time as
determined by the Board of the committee; provided, however, that in no event
may any option become exercisable earlier than the date six months following
the date on which the option is granted.  Options granted under the Stock
Option Plan may have a maximum term of ten years from the date of grant. The
option price must be paid in full on the date of exercise, and is payable in
cash or in Common Shares of the Company having a fair market value on the
date the option is exercised equal to the option price.

         As of March 31, 1995, the Company had granted options to purchase
298,750 Common Shares, at prices ranging from $2.12 to $3.00 per share, to
employees of the Company in accordance with the Stock Option Plan.

         As of March 31, 1996, the Company had granted options to purchase
1,100,000 common shares, at prices ranging from $1.75 to $2.00 per share, to
employees of the Company in accordance with the Stock Option Plan.

         Effective July 31, 1996, the Board re-priced 512,000 shares of
options granted for purchase to $.75 per share.

         Effective July 31, 1996 the Board issued 1,200,000 warrants for the
purchase price of $.75 per share to certain directors and officers outside
the plan.  These same directors and officers surrendered 572,000 stock
options within the plan.

                                          68

<PAGE>

         As of March 31, 1997 the Company had cancelled 100,500 stock options
due to terminated employees.

         As of March 31, 1997, the Company had granted options to purchase
1,042,500 shares, at $.75 per share, to employees of the Company in
accordance with the Stock Option Plan.

     Aggregated Option Exercises in Last Fiscal Year and Year-End Option Values

The following table sets forth certain information concerning all options
held by certain of the Company's most highly compensated executive officers
at the end of the Company's 1997 fiscal year (March 31, 1997). The Company
has never granted any stock appreciation rights ("SARs"). All of the options
listed in the table below are currently exercisable.

<TABLE>
<CAPTION>
                                                  Number of Securities    Value of
                                                       underlying       Unexercised
                   Number of Shares      Value     unexercised options  in-the-Money
    Name         Acquired on Exercise   Realized     at March 31,1996     Options
---------------- --------------------   ---------  -------------------- -----------
<S>              <C>                    <C>        <C>                  <C>
Gary C. Nelson          None              N/A            50,000             N/A

Richard D. Shannon (1)  None              N/A            50,000             N/A

Steven J. Orlando       None              N/A            50,000             N/A
</TABLE>

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

 (1)  On October 30, 1995, Baycor Ventures, Inc., a company of which Mr. 
      Shannon is a Director and 50% shareholder, exercised options to purchase 
      300,000 shares of the Company's Common Stock at a purchase price of $0.40 
      per share. The value recognized on these shares was approximately 
      $742,500.

  EMPLOYMENT AGREEMENTS

    The Company entered into a three-year employment agreement in February
1994 with Richard D. Shannon. The Company amended this agreement effective
January 1, 1996, increasing the base salary to $137,388 per year and
extending the term two years to January 31, 1999. The Company further amended
this agreement in May of 1996 reducing the base salary to $96,172 as a result
of the Company's financial performance.  Under certain conditions based on
the Company's performance the base salary will be reinstated upon either the
Company achieving profitability for one quarter or a significant improvement
in the Company's working capital.  As of June 1997, the Company has not
reinstated the base salary.  Pursuant to the employment agreement, Mr.
Shannon will act as Chairman of the Company, will serve on the Board of
Directors and will be entitled to receive, among other things, (a) during the
first year thereof, a base salary of $75,000, (b) during the second and third
years thereof, a base salary in an amount equal to the amount of the previous
year's salary plus the greater of (i) 7% of the base salary in effect for the
previous 12 month period and (ii) the percentage increase in the Consumer
Price Index for the prior 12-month period as reported by the United States
Department of Labor (the "Department of Labor"), (c) during each year
thereof, a bonus, equal to the amount determined by the Board of Directors,
under such incentive compensation plan as shall be adopted by the Board of
Directors of the Company, and (d) such options to purchase Common Shares of
the Company as may be granted pursuant to the terms of the Stock Option Plan.
There was no increase in salary since the last amendment.  The employment
agreement between the Company and Mr. Shannon does not require him to spend
more than 80% of his time on Company business.

                                          69
<PAGE>

    The Company entered into a three-year employment agreement in February
1994 with Gary C. Nelson. The Company amended this agreement effective
January 1, 1996, extending the term two years to January 31, 1999. The
Company further amended this agreement in May of 1996 reducing the base
salary to $116,207 as a result of the Company's financial performance. Under
certain conditions based on the Company's performance the base salary will be
reinstated  upon either the Company achieving profitability for one quarter
or a significant improvement in the Company's working capital. As of June
1997, the Company has not reinstated the base salary. Pursuant to the
employment agreement, Mr. Nelson will act as President and Chief Executive
Officer of the Company, will serve on the Board of Directors and will be
entitled to receive, among other things, (a) during the first year thereof, a
base salary of $145,000, (b) during the second and third years thereof, a
base salary in an amount equal to the amount of the previous year's salary
plus the greater of (i) 7% of the base salary in effect for the previous 12
month period and (ii) the percentage increase in the Consumer Price Index for
the prior 12-month period as reported by the Department of Labor, (c) during
each year thereof, a bonus, equal to the amount determined by the Board of
Directors of the Company under such incentive compensation plan as shall be
adopted by the Board of Directors of the Company, and (d) such options to
purchase Common shares of the Company as may be granted pursuant to the terms
of the Stock Option Plan. There was no increase in salary since the last
amendment.

    The Company entered into a three-year employment agreement in February
1994 with Bradley B. Landin. The Company amended this agreement in May of
1996 reducing the base salary to $73,274 as a result of the Company's
financial performance. Under certain conditions based on the Company's
performance the base salary will be reinstated upon either the Company
achieving profitability for one quarter or a significant improvement in the
Company's working capital. As of June 1997, the Company has not reinstated
the base salary.  In February 1997, the employment contract was extended to
January 1999.  Pursuant to the employment agreement, Mr. Landin will act as
Senior Vice President Operations of the Company, will serve on the Board of
Directors and will be entitled to receive among other things, (a) during the
first year thereof, a base salary of $80,000, (b) during the second and third
years thereof, a base salary in an amount equal to the amount of the previous
year's salary plus the greater of (i) 7% of the base salary in effect for the
previous 12 month period and (ii) the percentage increase in the Consumer
Price Index for the prior 12-month period as reported by the Department of
Labor, (c) during each year thereof, a bonus, equal to the amount determined
by the Board of Directors of the Company under such incentive compensation
plan as shall be adopted by the Board of Directors of the Company, and (d)
such options to purchase Common Shares of the Company as may be granted
pursuant to the terms of the Stock Option Plan. There was no salary increase
since the last amendment.

    The Company entered into a three-year employment agreement in February
1994 with Thomas A. Craig. The Company amended this agreement in May of 1996
reducing the base salary to $73,274 as a result of the Company's financial
performance.  Under certain conditions based on the Company's performance the
base salary will be reinstated upon either the Company achieving
profitability for one quarter or a significant improvement in the Company's
working capital. As of June 1997, the Company has not reinstated the base
salary.  In February 1997, the employment contract was extended to January
1999.  Pursuant to the employment agreement, Mr. Craig will act as Vice
President -- Marketing and Real Estate of the Company, and will be entitled
to receive, among other things, (a) during the first year thereof, a base
salary of $80,000, (b) during the second and

                                          70

<PAGE>

third years thereof, a base salary in an amount equal to the amount of the
previous year's salary plus the greater of (i) 7% of the base salary in
effect for the previous 12 month period and (ii) the percentage increase in
the Consumer Price Index for the prior 12-month period as reported by the
Department of Labor, (c) during each year thereof, a bonus, equal to the
amount determined by the Board of Directors of the Company under such
incentive compensation plan as shall be adopted by the Board of Directors of
the Company, and (d) such options to purchase Common Shares of the Company as
may be granted pursuant to the terms of the Stock Option Plan. There was no
salary increase since the last amendment.

    The Company entered into a three-year employment agreement in July of
1994 with Steven J. Orlando. The Company amended this agreement effective
January 1, 1996, increasing the base salary to $117,000 per year and
extending the term two years to July 15, 1999. The Company further amended
this agreement in May of 1996 reducing the base salary to $81,900 as a result
of the Company's financial performance.  Under certain conditions based on
the Company's performance the base salary will be reinstated upon either the
Company achieving profitability for one quarter or a significant improvement
in the Company's working capital. As of June 1997, the Company has not
reinstated the base salary. Pursuant to the employment agreement, Mr. Orlando
will act as Vice President -- Chief Financial Officer of the Company, and
will be entitled to receive, among other things, (a) during the first year
thereof, a base salary of $80,000, (b) during the second and third years
thereof, a base salary in an amount equal to the amount of the previous
year's salary plus the greater of (i) 7% of the base salary in effect for the
previous 12 month period and (ii) the percentage increase in the Consumer
Price Index for the prior 12-month period as reported by the Department of
Labor, (c) during each year thereof, a bonus, equal to the amount determined
by the Board of Directors of the Company under such incentive compensation
plan as shall be adopted by the Board of Directors of the Company, and (d)
such options to purchase Common Shares of the Company as may be granted
pursuant to the terms of the Stock Option Plan. There was no salary increase
since the last amendment.

COMPENSATION OF DIRECTORS

    Directors of the Company do not currently receive any compensation for
serving as Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION 
DECISIONS

    The Company does not maintain a Compensation Committee, as such.  All
decisions relating to the compensation of its executive officers are made by
the Company's Board of Directors, which includes as Directors Richard D.
Shannon, the Company's Chairman of the Board, Gary C. Nelson, its President
and Chief Executive Officer, all of whom are Company Employees.  Mr. Shannon,
along with Kevin R. Baker, the fourth member of the Company's Board also
serves as a Director and executive officer of Baycor Capital, a private
merchant bank based in Calgary, Canada, which is the parent corporation of
Baycor Ventures, the majority shareholder of the Company.  See Item 13,
"Certain Relationships and Related Transactions", below.

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

    The following table sets forth, as of June 30, 1997, the number and
percentage of shares of the Company's outstanding common stock beneficially
owned, directly or indirectly, by (a) any person

                                          71

<PAGE>

(or "group" as that term is used in Section 13(d)(3) of the Securities
Exchange Act of 1934 (the "Exchange Act")) who or which is known to the
Company to be the beneficial owner of more than five percent of the Company's
Common Stock, based on information filed by such persons with the Securities
and Exchange Commission, (b) each of the Company's Directors and the
executive officers identified in Item 11, above, and the Company's Directors
and executive officers as a group.  The shares listed as "beneficially owned"
are determined under Securities and Exchange Commission Rules, and do not
necessarily indicate ownership for any other purpose.

    In general, beneficial ownership includes shares over which such
principal shareholder, director, or executive officer has sole or shared
voting or investment power and shares which such person has the right to
acquire within 60 days of June 30, 1997.  Unless otherwise indicated, the
persons listed have sole voting and investment powers of the shares
beneficially owned.  Management is not aware of any arrangements, which may,
at a subsequent date, result in a change of control of the Company.

                                          72
<PAGE>

<TABLE>
<CAPTION>
                                                Amount and
                                                 Nature of
                                                Beneficial                Percent of
Name and Address of Beneficial Owner            Ownership (1)                Class
------------------------------------           ---------------            -----------
<S>                                            <C>                        <C>
Baycor Ventures, Inc.(2)                          1,748,766                    11.2%
1550, 3800 Howard Hughes Avenue
Las Vegas, NV 89109

Kevin R. Baker(3)                                 1,768,766                    11.3%
2000, 335-8th Avenue, S.W.
Calgary, Alberta
Canada T2P 1C9

Thomas A Craig(4)                                   254,027                     1.6%
1610 Arden Way, Suite 299
Sacramento, CA 95819


Bradley B Landin(5)                                 192,000                     1.2%
1610 Arden Way, Suite 299
Sacramento, CA 95819

Gary C. Nelson(6)                                 1,248,027                     7.8%
1610 Arden Way, Suite 299
Sacramento, CA 95819

Steven J. Orlando(7)                                457,200                     2.8%
1610 Arden Way, Suite 299
Sacramento, CA 95819

Richard D. Shannon(8)                             2,204,116                    13.7%
2000, 335-8th Avenue, S.W.
Calgary, Alberta
Canada T2P 1C9

Lyle Edwards(10)                                     10,000                      .1%
784 Parkridge Drive S.E.
Calgary, Alberta
Canada T25 5E9

PSSS, Inc. Trustee                                  834,000                      5.3%
3030 Hansen Way #200
Palo Alto, CA  94304

All Directors and Officers
as a Group (6 persons)(9)                         4,385,370                     25.7%
</TABLE>
-----------------------------------------

(1) All shares are owned directly by the individual(s) indicated, unless 
    otherwise indicated.
(2) Does not include 125,000 shares held by Baycor Ventures, Inc. ("Baycor")
    but subject to currently exercisable options in favor of Mssrs. Nelson,
    Craig and Landin.
(3) Includes shares owned by Baycor, a corporation of which Mr. Baker is an
    officer, Director, and 50% stockholder.  Does not include 125,000 shares
    held by Baycor but subject to currently exercisable options in favor
    of Mssrs. Nelson, Craig and Landin.  Includes 20,000 shares issuable
    upon the exercise of stock options exercisable within 60 days of     June
    30, 1997.

                                          73

<PAGE>

(4) Includes 21,000 shares available to Mr. Craig upon the exercise of a
    currently exercisable option issued by Baycor on outstanding Company
    shares presently owned by Baycor, and 49,000 shares issuable upon the
    exercise of stock options exercisable within 60 days of June 30, 1997.
(5) Includes 15,000 shares available to Mr. Landin upon the exercise of a
    currently exercisable option issued by Baycor on outstanding Company
    shares presently owned by Baycor, and 52,000 shares issuable upon the
    exercise of stock options exercisable within 60 days of June 30, 1997.
(6) Includes 89,000 shares available to Mr. Nelson upon the exercise of a
    currently exercisable option issued by Baycor on outstanding Company
    shares presently owned by Baycor, and 50,000 shares issuable upon the
    exercise of stock options exercisable within 60 days of June 30, 1997 and
    400,000 shares issuable upon the exercise of warrants exercisable within
    60 days of June 30, 1997.
(7) Includes 50,000 shares issuable upon the exercise of stock options
    exercisable within 60 days of June 30, 1997, and 400,000 shares issuable
    upon the exercise of warrants ercisable within 60 days of June 30, 1997.
(8) Includes shares owned by Baycor, a corporation of which Mr. Shannon is an
    officer, Direct or, and 50% stockholder.  Does not include 125,000
    shares held by Baycor but subject to currently exercisable options in
    favor of Messrs. Nelson, Craig and Landin.  Includes 48,350 shares
    issuable upon the exercise of stock options exercisable within 60 days of
    June 30, 1997 and 400,000 shares issuable upon the exercise of warrants
    exercisable within 60 days of June 30, 1997.

(9) Includes an aggregate of 1,479,350 shares issuable upon the exercise of
    outstanding stock options and warrants, which are exercisable within 60
    days of June 30, 1997.

(10)Includes 10,000 shares issuable upon the exercise of stock options
    exercisable within 60 days of June 30, 1997.

ITEM 13. CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS

    Baycor Ventures, Inc. ("Baycor"), the Company's largest single
shareholder, has entered into a series of transactions with the Company since
it was incorporated in March of 1992.

    Any future transactions between the Company and its officers, directors,
principal stockholders or other affiliates will be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties on an
arms-length basis and will be approved by a majority of the Company's
disinterested directors.  Any loans to officers, directors, principal
stockholders or affiliates of any of them will be made for bona fide business
purposes, will be on terms no less favorable than could be obtained from
unaffiliated third parties, and will be approved by a majority of the
Company's disinterested directors.

    In September 1995, the Company advanced to Baycor a loan in the amount of
$185,000.  The loan has a two-year term at a rate of prime rate plus 2% in
interest and is all due and payable at the end of two years.

    In May 1995, the Company advanced to Bradley Landin, Vice President
Operations and Director a loan in the amount of $59,000.  The loan has a term
of five years at a rate of principal plus 1% in interest with monthly
principal and interest payments of $1,200. The balance at March 31, 1997 is
$39,893.

    In July 1996, Baycor, Gary Nelson, President and Chief Executive Officer,
and Steven J. Orlando, Chief Financial Officer, agreed to loan the Company an
aggregate of $175,000 from time to time as needed in April 1997, when the
line of credit will be due and payable.  The lenders will receive a general
lien on Java Centrale assets and will be at an interest rate of principal
plus 2% per annum. In replacement of the line of credit, in April 1997 Gary
Nelson advanced the Company $50,000 and the Company pledge the assets of Java
Centrale for this note, Steven Orlando deferred $28,000 in salary due from
December 1996 through April 1997 and Baycor deferred the receipt of

                                          74

<PAGE>

salary and expenses, without interest, during the 1997 fiscal year.  The
maximum deferral was $145,041 as of January 31, 1997, and the amount
remaining unpaid as of June 30, 1997 was $93,633 and $64,952 at March 31,
1997.

    In October 1996, Lyle Edwards was elected as a director to the Company.
Mr. Edwards serves as a Vice President to Alta Petroleum, which has provided
a short-term loan of $200,000 in April 1996 and which was paid in December
1996.  Alta Petroleum provided additional financing of $300,000 in January
1997, $125,000 in April 1997 and $150,000 in June 1997.  These loans are
provided under an agreement, which secures 100% of the Company's stock of its
subsidiary Paradise Bakery and a security lien on the assets of Paradise
Bakery, Inc.  The loan bears an interest rate of 14% and a default rate of
16%.  The Company is required to pay this loan by proceeds in excess of
$500,000 in capital raised or assets sold.  The Note is due August 10, 1997.
Baycor was paid a $40,000 fee in association with the placement of this
financing.

    In February 1997, Mr. Nelson advanced the Company $40,000 for five days.
This advance was paid in March 1997 with no fees or interest charges.

ESCROW AGREEMENT

    Pursuant to an Amended and Restated Security Escrow Agreement (the
"Escrow Agreement"), by an between each of Baycor, Gary C. Nelson, Thomas A.
Craig, Bradley B. Landin, Richard D. Shannon, Richard M.H. Thompson &
Associates, Inc. and the Manry Company (such entities and persons being
hereinafter collectively referred to as the "Security Holders"), the Company,
the Representative and American Stock Transfer & Trust Company, as escrow
agent (the "Escrow Agent"), Baycor Ventures, Gary C. Nelson and Bradley B.
Landin, directors and officers of the Company and Thomas A. Craig, an officer
of the Company, placed an aggregate of 855,300 of their currently outstanding
Common Shares in escrow (the "Escrowed Shares") in connection with the
Company's public offering of its Common Stock in May of 1994.

    The Escrow Agreement provides that the Escrowed Shares shall be released
to the Security Holders and no longer governed by the terms and provisions of
the Escrow Agreement as follows:

         (a)       If the Company achieves, during the two fiscal years of 
    the Company ending March 31, 1995 and March 31, 1996, respectively, 
    an average annual net earnings per common share on a fully diluted basis, 
    calculated in accordance with GAAP, of at least $.30 per common 
    share, then two-thirds (66 2/3%) of the Escrowed Shares will be released 
    to the Security Holders and will no longer be subject to the Escrow 
    Agreement;

         (b)  If (i) two-thirds (66 2/3%) of the Escrowed Shares are released 
    in accordance with the provisions of paragraph (a), above, and (ii) the 
    Company has achieved during the fiscal year of the Company ending March 
    31, 1997, an annual net earnings per common share on fully diluted basis, 
    calculated in accordance with GAAP, of at least $.60 per common share, 
    then the remaining third (33 1/3%) of the Escrowed Shares will be 
    released to the Security Holders and no longer be subject to the Escrow 
    Agreement;

         (c)  Notwithstanding the provisions of paragraphs (a) and (b), 
    above, if the Company has achieved, during the three fiscal years of the 
    Company ending March 31, 1995, March 31, 1996

                                          75
<PAGE>

    and March 31, 1997, respectively, an average annual net earnings per common
    share on a fully diluted basis, calculated in accordance with GAAP, of at 
    least $.40 per common share, then all (100%) of the Escrowed Shares will 
    be released to the Security Holders and no longer be subject to the 
    Escrow Agreement;

         (d)  If (i) one-third (33 1/3%) of the Escrowed Shares remain 
    subject to the terms and provisions of the escrow created by the Escrow 
    Agreement as a result of the failure of the Company's annual net earnings 
    per common share to satisfy the requirements set forth in paragraphs (b) 
    or (c), above, and (ii) the Company achieves, during the fiscal year of 
    the Company ending March 31, 1998, an annual net earnings per common 
    share on a fully diluted basis, calculated in accordance with GAAP, of at 
    least $.40 per common share, then the remaining third (33 1/3%) of the 
    Escrowed Shares will be released to the Security Holders and no longer 
    governed by the terms and provisions of the Escrow Agreement;

         (e)  Notwithstanding any of the other provisions of the Escrow 
    Agreement, if the Company achieves, during the four fiscal years of the 
    Company ending March 31, 1995, March 31, 1996, March 31, 1997 and March 
    1998, respectively, an average annual net earnings per common share on a 
    fully diluted basis, calculated in accordance with GAAP, of at least $.40 
    per common share, all (100%) of the Escrowed Shares will be released to 
    the Security Holders and no longer subject to the Escrow Agreement; and

         (f)  Any Escrowed Shares, which have not been previously released to 
    the Security Holders in accordance with the provisions of the Escrow 
    Agreement, will then be released, and no longer subject to the Escrow 
    Agreement.

    If any Security Holder exercises warrants or options to acquire
additional Common Shares of the Company (the "Additional Shares"), one-third
(33 1/3%) of such Additional Shares must immediately be delivered to the
Escrow Agent, and will be held and released pursuant to the Escrow Agreement
as if they were original Escrowed Shares.

                                          76

<PAGE>

                                       PART IV


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

    (a)  1.   FINANCIAL STATEMENTS.

    The Company's Balance Sheets as of March 31, 1996 (the end of its most
recent fiscal year), and the related statements of operations, stockholders'
equity (deficit) and cash flows for the years ended March 31, 1996, 1995 and
1994, are included herewith under Item 8, "Financial Statements and
Supplementary Data," above.

    2.   FINANCIAL STATEMENT SCHEDULES.

         None.

    (b)  CURRENT REPORTS ON FORM 8-K.

         None.


    (c)  EXHIBITS.

    The following documents are included or incorporated by reference in this
    Annual Report. Exhibits marked with an asterisk (*) represent management
    contracts or compensatory plans or arrangements.

    EXHIBIT
    NUMBER    DESCRIPTION
    --------  -----------

    2.1  Stock Purchase Agreement dated December 14, 1995 between Java
              Centrale, Inc. and Chart House Enterprises, Inc. (filed as
              Exhibit 2.3 to the Registrant's Registration Statement on Form
              8-K dated December 31, 1995, and by this reference incorporated
              herein.)

    2.2  Merger Agreement dated December 15, 1995, between Java Centrale,
              Inc., Paradise Bakery, Inc. and Founders Venture, Inc. (filed
              as Exhibit 2.4 to the Registrant's Registration Statement on
              Form 8-K dated January 17, 1996, and by this reference
              incorporated herein.)

    2.3  Purchase Agreement dated November 22, 1996, between Java Centrale,
              Inc. and Good Food Fast Companies, Inc., (filed as Exhibit No.
              2.3 to the Registrant's Registration Statement on Form 8-K
              dated December 16, 1996, and by this reference incorporated
              herein.)

    3.1. Amended and Restated Articles of Incorporation (filed as Exhibit 3.1
              to the Registrant's Annual Report on Form 10-K for the fiscal
              year ended March 31, 1994, and by

                                          77

<PAGE>

              this reference incorporated herein).

    3.2  Bylaws, as amended January 10, 1995 (filed as Exhibit 3.1 to the
              Registrant's Quarterly Report on Form 10-Q for the quarterly
              period ended December 31, 1994, and by this reference
              incorporated herein).

    4.1  Warrants issued by the Company to Richard M.H. Thompson &
              Associates, Inc. (filed as Exhibit No. 4.1 to the Registrant's
              Registration Statement on Form S-1 dated March 17, 1994
              (Commission File No. 33-76528), and by this reference
              incorporated herein).

    4.2  Warrants issued by the Company to The Manry Company (filed as
              Exhibit No. 4.2 to the Registrant's Registration Statement on
              Form S-1 dated March 17, 1994 (Commission File No. 33-76528),
              and by this reference incorporated herein).

    4.3  Warrants issued by the Company to Argent Securities, Inc. (filed as
              Exhibit No. 4.5 to the Registrant's Registration Statement on
              Form S-1 dated March 17, 1994 (Commission File No. 33-76528),
              and by this reference incorporated herein).

    4.4* Amended and Restated Security Escrow Agreement by and between the
              Company and each of Baycor Ventures, Inc., Gary C. Nelson,
              Thomas A. Craig, Bradley B. Landin, Richard D. Shannon, Richard
              M.H. Thompson & Associates, Inc., The Manry Company, American
              Stock Transfer & Trust Company, and Argent Securities, Inc.
              (filed as Exhibit No. 4.6 to Amendment No. 1 to the
              Registrant's Registration Statement on Form S-1 dated March 17,
              1994 (Commission File No. 33-76528), and by this reference
              incorporated herein).

    4.5* Java Centrale, Inc. 1993 Stock Option Plan (filed as Exhibit No.
              10.33 to the Registrant's Registration Statement on Form S-1
              dated March 17, 1994 (Commission File No. 33-76528), and by
              this reference incorporated herein).

    4.6* Incentive Stock Option Agreement between the Registrant and Stephen
              J. Orlando, dated August 15, 1994,  (filed as Exhibit No. 4.6
              to the Registrant Annual Report on form 10-K for the year ended
              March 31, 1995, and by this reference incorporated herein).

    4.7* Stock Purchase Warrant Agreement between the Registrant and Oh La
              La!, Inc., dated March 30, 1995, (filed as Exhibit No. 4.7 to
              the Registrant Annual Report on form 10-K for the year ended
              March 31, 1995, and by this reference incorporated herein).

    4.8  Series B Stock Purchase Warrant, issued to Oh La La!, Inc. pursuant
              to the Stock Purchase Warrant Agreement between the Registrant
              and Oh La La!, Inc. dated March 30, 1995, (filed as Exhibit No.
              4.8 to the Registrant Annual Report on form 10-K for the year
              ended March 31, 1995, and by this reference incorporated
              herein).

                                          78

<PAGE>

    4.9    Series C Stock Purchase Warrant, issued to Oh La La!, Inc. pursuant
              to the Stock Purchase Warrant Agreement between the Registrant
              and Oh La La!, Inc. dated March 30, 1995, (filed as Exhibit No.
              4.9 to the Registrant Annual Report on form 10-K for the year
              ended March 31, 1995, and by this reference incorporated
              herein).

    4.10   Consulting Agreement between Java Centrale, Inc. and Franchise
              Development Corporation, dated as of July 2, 1995 (filed as
              Exhibit 4.1 to the Registrant's Registration Statement on Form
              S-8 dated August 28, 1995, and by this reference incorporated
              herein.)

    4.11   Consulting Agreement between Java Centrale, Inc. and Alcott Simpson
              & Co., dated as of July 2, 1995 (filed as Exhibit 4.2 to the
              Registrant's Registration Statement on Form S-8 dated August
              28, 1995, and by this reference incorporated herein.)

    4.12   Amendment No. 1 to Consulting Agreement between Registrant and
              Alcott Simpson & Co, Inc., dated as of July 2, 1995 (filed as
              Exhibit 4.8 to the Registrant's Registration Statement on Form
              S-8 dated October 23, 1995, and by this reference incorporated
              herein.)

    4.13   Stock Purchase Warrant, dated as of July 2, 1995, issued by the
              Registrant to Alcott Simpson & Co, Inc., (filed as Exhibit 4.9
              to the Registrant's Registration Statement on Form S-8 dated
              October 23, 1995, and by this reference incorporated herein.)

    4.14   Note Purchase Agreement, dated January 22, 1996, between the
              Registrant and Gross Foundation, Inc. (filed as Exhibit No. 4.1
              to the Registrant's Registration Statement on Form S-3 dated
              February 21, 1996, [Commission File No.333-1526], and by this
              reference incorporated herein.)

    4.15   Form of Convertible Note, dated January 29, 1996, issued to Gross
              Foundation, Inc. (filed as Exhibit No. 4.2 to the Registrant's
              Registration Statement on Form S-3 dated February 21, 1996,
              [Commission File No.333-1526], and by this reference
              incorporated herein.)

    4.16   Registration Rights Agreement, dated January 22, 1996, between the
              Registrant and Gross Foundation, Inc., (filed as Exhibit No.
              4.3 to the Registrant's Registration Statement on Form S-3
              dated February 21, 1996, [Commission File No.333-1526], and by
              this reference incorporated herein.)

    4.17   Note Purchase Agreement, dated January 22, 1996, between the
              Registrant and Santina Holding, Inc. (filed as Exhibit No. 4.4
              to the Registrant's Registration Statement on Form S-3 dated
              February 21, 1996, [Commission File No.333-1526], and by this
              reference incorporated herein.)

    4.18   Form of Convertible Note, dated January 29, 1996, issued to Santina
              Holding, Inc., (filed as Exhibit No. 4.5 to the Registrant's
              Registration Statement on Form S-3

                                          79

<PAGE>

              dated February 21, 1996, [Commission File No.333-1526], and by
              this reference incorporated herein.)

    4.19   Registration Rights Agreement, dated January 22, 1996, between the
              Registrant and Santina Holding, Inc. (filed as Exhibit No. 4.6
              to the Registrant's Registration Statement on Form S-3 dated
              February 21, 1996, [Commission File No.333-1526], and by this
              reference incorporated herein.)

    4.20   Stock Purchase Agreements covering the issuance of 876,000 common
              shares for net proceeds to the Company of $3,561,837 (filed as
              Exhibit No. 10(3) to the Registrant's Registration Statement on
              Form 10-Q dated September 30, 1995, and by this reference
              incorporated herein.)

    4.21*   Incentive Stock Option Agreement between the Company and its
              officers, Steven J. Orlando for 100,000 shares at $2.00, Gary
              C. Nelson for 140,000 shares at $2.20, Thomas A. Craig for
              50,000 shares at $2.00, Bradley B. Landin for 50,000 shares at
              $2.00, and Richard D. Shannon for 163,000 shares at $2.20, all
              dated October 27, 1995, are omitted, as they are identical in
              form to previous agreements filed as Exhibit 4.6 to the
              Company's Annual Report or Form 10-K dated June 27, 1995, which
              by this reference are incorporated, (filed as Exhibit No. 10.19
              to the Registrant's Registration Statement on Form 10-Q dated
              December 31, 1995, and by this reference incorporated herein.)

    4.22*   Incentive Stock Option Agreement between the Company and its
              officers, Steven J. Orlando for 75,000 shares at $1.75, Gary C.
              Nelson for 27,000 shares at $1.93, Thomas A. Craig for 15,000
              shares at $1.75, Bradley B. Landin for 20,000 shares at $1.75
              and Richard D. Shannon for 11,250 shares at $1.93 all dated May
              11, 1995, are omitted, as they are identical in form to
              previous agreements filed as Exhibit No. 4.6 to the Company's
              Annual Report or Form 10-K dated June 27, 1995, which by this
              reference are incorporated herein (filed as Exhibit No. 10 to
              the Registrant's Registration Statement on Form 10-Q dated June
              30, 1995, and by this reference incorporated herein.)

    4.23   Note Purchase Agreement, dated December 15, 1995, between the
              Registrant and Legong Investments, N.V., (filed as Exhibit No.
              4.1 to the Registrant's Registration Statement on Form S-3
              dated January 2, 1996, [Commission File No.333-42], and by this
              reference incorporated herein.)

    4.24   Form of Convertible Note, dated December 15, 1995, between
              Registrant and Legong Investments, N.V., (filed as Exhibit No.
              4.2 to the Registrant's Registration Statement on Form S-3
              dated January 2, 1996, [Commission File No.333-42], and by this
              reference incorporated herein.)

    4.25   Registration Rights Agreement, dated December 15, 1995, between the
              Registrant and Legong Investment, N.V., (filed as Exhibit No.
              4.3 to the Registrant's Registration Statement on Form S-3
              dated January 2, 1996, [Commission File No.333-42], and by this
              reference incorporated herein.)

                                          80

<PAGE>


    4.26   Stock Purchase Warrant, dated as June 12, 1996, issued by the
              Registrant to Growth Science Venture, Inc., (filed as Exhibit
              No. 4.2 to the Registrant's Registration Statement on Form S-8
              dated June 28, 1996, [Commission File No.333-07261], and by
              this reference incorporated herein.)

    4.27   Stock Purchase Warrant, dated as June 12, 1996, issued by the
              Registrant to Hayden Group, (filed as Exhibit No. 4.4 to the
              Registrant's Registration Statement on Form S-8 dated June 28,
              1996, [Commission File No.333-07261], and by this reference
              incorporated herein.)

    4.28   Stock Purchase Warrant, dated as June 12, 1996, issued by the
              Registrant to Meyers, Pollick, Robbins, Inc., (filed as Exhibit
              No. 4.6 to the Registrant's Registration Statement on Form S-8
              dated June 28, 1996, [Commission File No.333-07261], and by
              this reference incorporated herein.)

    4.29   Consulting Agreement, dated as June 12, 1996, between the Registrant
              and Growth Science Ventures, Inc., (filed as Exhibit No. 4.1 to
              the Registrant's Registration Statement on Form S-8 dated June
              28, 1996, [Commission File No.333-07261], and by this reference
              incorporated herein.)

    4.30   Consulting Agreement, dated as June 12, 1996, between the Registrant
              and The Hayden Group, (filed as Exhibit No. 4.3 to the
              Registrant's Registration Statement on Form S-8 dated June 28,
              1996, [Commission File No.333-07261], and by this reference
              incorporated herein.)

    4.31   Consulting Agreement, dated as June 12, 1996, between the Registrant
              and Meyers Pollock Robbins, Inc., (filed as Exhibit No. 4.5 to
              the Registrant's Registration Statement on Form S-8 dated June
              28, 1996, [Commission File No.333-07261], and by this reference
              incorporated herein.)

    4.32   A Stock Purchase Warrant, dated February 20, 1997, issued by the
              Registrant to One Capital Corporation, Inc., (filed as Exhibit
              No. 4.2 to the Registrant's Registration Statement on Form S-8
              dated April 3, 1997, [Commission File No.333-24461], and by
              this reference incorporated herein.)

    4.33   B Stock Purchase Warrant, dated February 20, 1997, issued by the
              Registrant to One Capital Corporation, Inc., (filed as Exhibit
              No. 4.3 to the Registrant's Registration Statement on Form S-8
              dated April 3, 1997, [Commission File No.333-24461], and by
              this reference incorporated herein.)

    4.34   C Stock Purchase Warrant, dated February 20, 1997, issued by the
              Registrant to One Capital Corporation, Inc., (filed as Exhibit
              No. 4.5 to the Registrant's Registration Statement on Form S-8
              dated April 3, 1997, [Commission File No.333-24461], and by
              this reference incorporated herein.)

    4.35*  Stock Purchase Warrant, dated July 11, 1996, issued by the Company
              to Artistic


                                          81

<PAGE>

              License, Inc., (filed as Exhibit No. 4.1 to the Pre-Effective
              Amendment No. 2 to the Registrant's Registration Statement on
              Form S-3 dated March 19, 1997, [Commission File No.333-16575],
              and by this reference incorporated herein.)

   4.36*   Stock Purchase Warrant, dated October 21, 1996, issued by the
              Company to Alta Petroleum, Inc., (filed as Exhibit No. 4.2 to
              the Pre-Effective Amendment No. 2 to the Registrant's
              Registration Statement on Form S-3 dated March 19, 1997,
              [Commission File No.333-16575], and by this reference
              incorporated herein.)

    4.37*   Stock Purchase Warrant, dated September 30, 1996, between the
              Registrant and Richard D. Shannon for 400,000 common shares at
              $.75 per share, (filed as Exhibit No. 4.30 to the Registrant's
              Registration Statement on Form 10-Q dated September 30, 1996,
              and by this reference incorporated herein.)

    4.38*   Stock Purchase Warrant, dated September 30, 1996, between the
              Registrant and Steven J. Orlando for 400,000 common shares
              (filed as Exhibit No. 4.31 to the Registrant's Registration
              Statement on Form 10-Q dated September 30, 1996, and by this
              reference incorporated herein.)

    4.39*   Stock Purchase Warrant, dated September 30, 1996, between the
              Registrant and Gary C. Nelson for 400,000 common shares, (filed
              as Exhibit No. 4.32 to the Registrant's Registration Statement
              on Form 10-Q dated September 30, 1996, and by this reference
              incorporated herein.)

    4.40   Stock Purchase Warrant, dated July 11, 1996, between the Registrant
              and Artistic License for 350,000 common shares, (filed as
              Exhibit No. 4.33 to the Registrant's Registration Statement on
              Form 10-Q dated September 30, 1996, and by this reference
              incorporated herein.)

    4.41   Stock Purchase Warrant, dated October 21, 1996, between the
              Registrant and Alta Petroleum, Inc., for 50,000 common shares,
              (filed as Exhibit No. 4.34 to the Registrant's Registration
              Statement on Form 10-Q dated September 30, 1996, and by this
              reference incorporated herein.)

    4.42   Stock Purchase Warrant, dated September 24, 1996, between the
              Registrant and H.I.G. Securities Investments, LTD, for 384,615
              common shares, (filed as Exhibit No. 4.35 to the Registrant's
              Registration Statement on Form 10-Q dated September 30, 1996,
              and by this reference incorporated herein.)

    4.43   Stock Purchase Warrant, dated September 24, 1996, between the
              Registrant and Alana Group, LTD, for 384,615 common shares,
              (filed as Exhibit No. 4.36 to the Registrant's Registration
              Statement on Form 10-Q dated September 30, 1996, and by this
              reference incorporated herein.)

    4.44   Corporate Development Agreement dated February 4, 1997, between
              the Registrant and One Capital Corporation, Inc. (filed as
              Exhibit 4.1 to the Registrant's Registration Statement on Form
              S-8 dated April 3, 1997, [Commission File No.

                                          82

<PAGE>


               333-24461], and by this reference incorporated herein.)

    4.45   Note Purchase Agreement, dated January 22, 1996, between the
              Registrant and One Capital Corporation, Inc. (filed as Exhibit
              4.1 to the Registrant's Registration Statement on Form S-8
              dated April 3, 1997, [Commission File No. 333-24461], and by
              this reference incorporated herein.)

    4.46   Stock Purchase Agreements dated September 20, 1996, for the issuance
              of 1,538,462 common shares (filed as Exhibit 4.29 to the
              Registrant's Registration Statement on Form 10-Q dated
              September 30, 1996, and by this reference incorporated herein).

    4.47   Stock Purchase Warrants dated September 24, 1996, for 384,615 common
              shares between the Registrant and Alana Group, LTD, (filed as
              Exhibit 4.36 to the Registrant's Registration Statement on Form
              10-Q dated September 30, 1996, and by this reference
              incorporated herein).

    4.48   Stock Purchase Warrant, dated January 1, 1996, issued by the
              Registrant to Edward T. Peabody (filed as Exhibit 4.4 to the
              Registrant's Registration Statement on Form S-8, dated November
              20, 1996, and by this reference incorporated herein).

    10.1*  Employment Agreement, dated February 1, 1994, between the
              Registrant and Richard D. Shannon (filed as Exhibit No. 10.28
              to the Registrant's Registration Statement on Form S-1 dated
              March 17, 1994 (Commission File No. 33-76528), and by this
              reference incorporated herein).

    10.2*  Employment Agreement, dated February 1, 1994, between the
              Registrant and Gary C. Nelson (filed as Exhibit No. 10.29 to
              the Registrant's Registration Statement on Form S-1 dated March
              17, 1994 (Commission File No. 33-76528), and by this reference
              incorporated herein).

    10.3*  Employment Agreement, dated February 1, 1994, between the
              Registrant and Bradley B. Landin (filed as Exhibit No. 10.30 to
              the Registrant's Registration Statement on Form S-1 dated March
              17, 1994 (Commission File No. 33-76528), and by this reference
              incorporated herein).

    10.4*  Employment Agreement, dated February 1, 1994, between the
              Registrant and Thomas A Craig (filed as Exhibit No. 10.31 to
              the Registrant's Registration Statement on Form S-1 dated March
              17, 1994 (Commission File No. 33-76528), and by this reference
              incorporated herein).

    10.5   Employment Agreement, dated June 30, 1994, between the Registrant
              and Steven J. Orlando (filed as Exhibit No. 10.46 to the
              Registrant's Quarterly Report on Form 10-Q for the quarter
              ended June 30, 1994, and by this reference incorporated herein).

    10.6   Java Centrale, Inc. Incentive Compensation Plan (filed as Exhibit No.
              10.34 to the


                                          83

<PAGE>

              Registrant's Registration Statement on Form S-1 dated March 17,
              1994 (Commission File No. 33-76528), and by this reference
              incorporated herein).

    10.7   Joint Venture Formation Agreement, dated November 14, 1994, among
              the Registrant, Chamberlin Capital Corp, Java Southeast
              Partners, L.P., and Java Southeast, Inc., and amendments
              thereto, (filed as Exhibit No. 10.7 to the Registrant Annual
              Report on form 10-K for the year ended March 31, 1995, and by
              this reference incorporated herein).

    10.8   Asset Purchase Agreement, dated as of February 15, 1995, between the
              Registrant and Oh La La!, Inc. (filed as Exhibit 2.1 to the
              Registrant's Current Report on Form 8-K dated March 30, 1995,
              and by this reference incorporated herein).

    10.9   First Amendment to Asset Purchase Agreement, dated March 30, 1995,
              between the Registrant and PSSS, Inc. (filed as Exhibit 2.2 to
              the Registrant's Current Report on Form 8-K dated March 30,
              1995, and by this reference incorporated herein).

    10.10  Authorized Producer Agreement, dated as of May 1, 1995, between the
              Registrant and Coffee Bean International, (filed as Exhibit No.
              10.10 to the Registrant Annual Report on form 10-K for the year
              ended March 31, 1995, and by this reference incorporated
              herein).

    10.11   Lease effective September 1, 1995 between the Company and
              California Birch Associates (filed as Exhibit No. 10(1) 
              to the Registrant's Registration Statement on Form 10-Q 
              dated September 30, 1995, and by this reference 
              incorporated herein.)

    10.12 Lease effective August 15, 1995 between the Company and Palmdale
              SISOS G.P. (filed as Exhibit No. 10(2) to the Registrant's
              Registration Statement on Form 10-Q dated September 30, 1995,
              and by this reference incorporated herein.)

    10.13* Indemnification Agreements, dated October 16, 1995, between the
              Registrant and Richard Shannon, Chairman of the Board; Gary C.
              Nelson, President; Steven J. Orlando, Chief Financial Officer;
              Bradley B. Landin, Vice President; Thomas A. Craig, Vice
              President; Kevin Baker, Director, and Baycor Venture, Inc., the
              single largest shareholder.

    10.14* Employment Agreement, dated January 1, 1996, between the Registrant
              and Ty Peabody.

    10.17  Asset Purchase Agreement, dated December 15, 1995, between the
              Registrant, Paradise Bakery, Inc. and Venture 88, Inc.

    10.18  Credit Agreement, dated July 11, 1996, between the Registrant
              and Alta Petroleum, Inc., (filed as Exhibit No. 10.22 to the
              Registrant's Registration Statement on Form 10-Q dated
              September 30, 1996, and by this reference incorporated herein.)

                                          84

<PAGE>

    10.19  Loan Agreement, dated July 11, 1996, between the Registrant and
              Artistic License, (filed as Exhibit No. 10.21 to the
              Registrant's Registration Statement on Form 10-Q dated
              September 30, 1996, and by this reference incorporated herein.)

    10.20  Finance Agreement effective December 1, 1996, between the Company
              and Vision Capital Corporation, (filed as Exhibit No. 10.23 to
              the Registrant's Registration Statement on Form 10-Q dated
              December 31, 1996, and by this reference incorporated herein.)

    10.21  Loan Agreement effective January 31, 1997, between the Company and
              Alta Petroleum, (filed as Exhibit No. 10.24 to the Registrant's
              Registration Statement on Form 10-Q dated December 31, 1996,
              and by this reference incorporated herein.)

    10.22  Additional Bridge Loan Agreement, amended April 4, 1997, between
              the Company and Alta Petroleum, Inc.

    10.23  Additional Bridge Loan Agreement, amended April 7, 1997, between
              the Company and Alta Petroleum, Inc.

    10.24* Addendum No. 1 to Employment Agreement between the Company and
              Bradley B. Landin, dated January 1, 1997.

    10.25* Addendum No. 1 to Employment Agreement between the Company and
              Thomas A. Craig, dated January 1, 1997.

    10.26* Amendment to Employment Agreement between the Company and
              Steven Orlando, effective March 31, 1997.

    10.27  Termination of Credit Line between the Company and Gary
              Nelson, dated April 7, 1997.

    10.28  Exchange Agreement with Good Food Fast Companies, Inc. and the
              Company dated March 31, 1997.

    10.29  Termination Agreement with Java Southeast, Inc. and the Company 
              dated

    10.30  Amendment to Note Agreement with Legong Investment, N.V., dated
              July 1997.

    10.31  Warrant Agreement - Legong Investment, N.V., dated July 1997.

    11.    Statement re Computation of Per Share Earnings (Loss)

    21.    Subsidiaries of the Registrant.

    27.    Financial Data Schedule



                                          85

<PAGE>

    (d)  EXCLUDED FINANCIAL STATEMENTS

              Not applicable.

























                                          86

<PAGE>
                                      SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 2 to 
Annual Report on Form 10-K to be signed on its behalf by the undersigned, 
thereunto duly authorized.

Dated: July 15, 1997                   JAVA CENTRALE, INC.



                                  By:    /S/ GARY C. NELSON
                                     --------------------------------
                                       Gary C. Nelson
                                       President and Chief Executive Officer

                                  And By:   /S/ STEVEN J. ORLANDO
                                       ------------------------------
                                       Steven J. Orlando
                                       Senior Vice President and
                                       Chief Financial Officer
                                       (Principal Financial and Accounting 
                                        Officer)


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

 /S/ KEVIN R. BAKER                                        July 15, 1997
------------------------------
Kevin R. Baker, Director

 /S/ LYLE P. EDWARDS                                       July 15, 1997
------------------------------
Lyle P. Edwards, Director

 /S/ GARY C. NELSON                                        July 15, 1997
------------------------------
Gary C. Nelson, President and Director

 /S/ RICHARD D. SHANNON                                    July 15, 1997
------------------------------
Richard D. Shannon, Director and
  Chairman of the Board






                                          87

<PAGE>


                                  INDEX TO EXHIBITS


    Exhibits marked with an asterisk (*) represent management contracts or 
compensatory plans or arrangements.

<TABLE>
<CAPTION>

    Exhibit
    Number                                 Description
    --------                               -----------

<S>                             <C>
    10.22                       Additional Bridge Loan Agreement, amended April 4,
                                1997, between the Company and Alta Petroleum, Inc.

    10.23                       Additional Bridge Loan Agreement, amended April 7,
                                1997, between the Company and Alta Petroleum, Inc.

    10.24*                      Addendum No. 1 to Employment Agreement between
                                the Company and Bradley B. Landin, dated January 1, 1997.

    10.25*                      Addendum No. 1 to Employment Agreement between the
                                Company and Thomas A. Craig, dated January 1, 1997.

    10.26*                      Amendment to Employment Agreement between the
                                Company and Steven Orlando, effective March 31, 1997.

    10.27                       Termination of Credit Line between the Company and Gary
                                Nelson, dated April 7, 1997.

    10.28                       Exchange Agreement with Good Food Fast Companies, Inc.
                                and the Company dated March 31, 1997.

    10.29                       Termination Agreement with Java Southeast, Inc. and the
                                Company dated

    10.30                       Amendment to Note Agreement with Legong Investment, N.V.,
                                dated July 1997.

    10.31                       Warrant Agreement - Legong Investment, N.V., dated July 1997.

    11.                         Statement Re Computation of Per Share Earnings (Loss).

    21.                         Subsidiaries of the Registrant.

    27.                         Financial Data Schedule.

</TABLE>


                                          88