ALL AMERICAN FOOD GROUP INC
SB-2/A, 1996-08-20
PATENT OWNERS & LESSORS
Previous: CAFETERIA OPERATORS LP, 10-Q, 1996-08-20
Next: CORESTATES HOME EQUITY LOAN TRUST 1996-1, 8-K, 1996-08-20



<PAGE>   1
 
   
    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 20, 1996
    
                                                       REGISTRATION NO. 333-4490
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                               ------------------
 
   
                                AMENDMENT NO. 2
                                       TO
                                   FORM SB-2
    
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                               ------------------
 
                         ALL AMERICAN FOOD GROUP, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
 
                                   NEW JERSEY
                        (STATE OR OTHER JURISDICTION OF
                         INCORPORATION OR ORGANIZATION)
 
                                      5461
                          (PRIMARY STANDARD INDUSTRIAL
                          CLASSIFICATION CODE NUMBER)
 
                                   22-3259558
                                (I.R.S. EMPLOYER
                              IDENTIFICATION NO.)
 
                                  9 LAW DRIVE
                          FAIRFIELD, NEW JERSEY 07006
                                 (201) 244-9336
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE
                                  OF BUSINESS)
 
                               ------------------
 
                                ANDREW THORBURN
                      CHAIRMAN AND CHIEF EXECUTIVE OFFICER
                         ALL AMERICAN FOOD GROUP, INC.
                                  9 LAW DRIVE
                          FAIRFIELD, NEW JERSEY 07006
                                 (201) 244-9336
           (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
 
                               ------------------
 
                                   Copies to:
 
<TABLE>
<S>                                           <C>
         DAVID J. LEVENSON, ESQ.                         HANK GRACIN, ESQ.
        ANITA J. FINKELSTEIN, ESQ.                        LEHMAN & EILEN
VENABLE, BAETJER, HOWARD & CIVILETTI, LLP      50 CHARLES LINDBERGH BLVD., SUITE 505
        1201 NEW YORK AVENUE, N.W.                      UNIONDALE, NY 11553
           WASHINGTON, DC 20005                           (516) 222-0888
              (202) 962-4800
</TABLE>
 
                               ------------------
 
                APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
    As soon as possible after the Registration Statement becomes effective.
 
    If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. /X/
 
    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
 
    If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /
 
    If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
 
    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>   2
 
                                EXPLANATORY NOTE
 
   
     This Registration Statement covers the registration of (i) up to 690,000
shares, including shares to cover overallotments, if any, of Common Stock, no
par value per share ("Common Stock"), of All American Food Group, Inc., a New
Jersey corporation (the "Company"), for sale by the Company in an underwritten
public offering; (ii) an additional 1,773,900 shares of Common Stock for resale
from time to time by the holders thereof, who acquired such shares in the
Company's prior private placements, subject to the contractual restriction that
the holders may not sell their shares until a minimum of six months after
completion of the underwritten offering; (iii) for resale, warrants (the
"Underwriter's Warrants") exercisable to purchase 60,000 shares of Common Stock
at a price of $     per share (130% of the initial public offering price in the
underwritten offering) to be issued to the Underwriter in connection with the
underwritten offering; and (iv) 60,000 shares of Common Stock underlying the
Underwriter's Warrants. The shares of Common Stock issued by the Company in its
private placements are referred to collectively as the "Selling Securityholder
Securities" and the holders thereof as the "Selling Securityholders."
    
 
     The complete Prospectus relating to the underwritten offering follows
immediately after this Explanatory Note. Following the Prospectus for the
underwritten offering are pages of the Prospectus relating solely to the Selling
Securityholder Securities, including alternative front and back cover pages and
sections entitled "Concurrent Public Offering," "Plan of Distribution," and
"Selling Securityholders," to be used in lieu of the sections entitled
"Concurrent Offering" and "Underwriting" in the Prospectus relating to the
underwritten offering. Certain sections of the Prospectus for the underwritten
offering, such as "Use of Proceeds" and "Dilution," will not be used in the
Prospectus relating to the Selling Securityholder Securities.
<PAGE>   3
 
                         ALL AMERICAN FOOD GROUP, INC.
 
                               ------------------
 
                             CROSS REFERENCE SHEET
 
<TABLE>
<CAPTION>
                       FORM SB-2 ITEM                             CAPTION IN PROSPECTUS
      -------------------------------------------------   -------------------------------------
<C>   <S>                                                 <C>
PART I
  1.  Front of Registration Statement and Outside Front
        Cover of Prospectus............................   Cover of Prospectus
  2.  Inside Front and Outside Back Cover Pages of        Inside Front and Outside Back Cover
        Prospectus.....................................     Page of Prospectus
  3.  Summary Information and Risk Factors.............   Prospectus Summary; Risk Factors
  4.  Use of Proceeds..................................   Use of Proceeds
  5.  Determination of Offering Price..................   Underwriting
  6.  Dilution.........................................   Dilution
  7.  Selling Security Holders.........................   Concurrent Offering; Selling
                                                            Securityholders
  8.  Plan of Distribution.............................   Underwriting; Plan of Distribution
  9.  Legal Proceedings................................   Business -- Legal Proceedings
 10.  Director, Executive Officers, Promoters and
        Control Persons................................   Management
 11.  Security Ownership of Certain Beneficial Owners
        and Management.................................   Principal Shareholders
 12.  Description of Securities........................   Description of Securities
 13.  Interest of Named Experts and Counsel............   Not Applicable
 14.  Disclosure of Commission Position on
        Indemnification for Securities Act                Management -- Limitation of Liability
        Liabilities....................................     and Indemnification Matters
 15.  Organization Within Last Five Years..............   Business
 16.  Description of Business..........................   Business
 17.  Management's Discussion and Analysis or Plan of     Management's Discussion and Analysis
        Operation......................................     or Plan of Operation
 18.  Description of Property..........................   Business -- Properties
 19.  Certain Relationships and Related Transactions...   Certain Transactions
 20.  Market for Common Equity and Related Stockholder    Risk Factors -- No Prior Public
        Matters........................................     Market for the Common Stock;
                                                            Dividend Policy; Description of
                                                            Securities
 21.  Executive Compensation...........................   Management -- Executive Compensation
 22.  Financial Statements.............................   Financial Statements
 23.  Changes in and Disagreements With Accountants on
        Accounting and Financial Disclosure............   Not Applicable
</TABLE>
<PAGE>   4
 
     INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
     REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
     SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
     MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
     BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
     THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
     SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
     UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
     OF ANY SUCH STATE.
 
   
                  SUBJECT TO COMPLETION, DATED AUGUST 20, 1996
    
PROSPECTUS
                                 600,000 SHARES
 
                         ALL AMERICAN FOOD GROUP, INC.
                                  COMMON STOCK
                                 (NO PAR VALUE)
                            ------------------------
 
    The 600,000 shares of Common Stock (the "Shares") of All American Food
Group, Inc. (the "Company") offered hereby are being sold by the Company through
Alexander, Wescott & Co., Inc. (the "Underwriter").
 
    The initial public offering price of the Shares will be determined by
negotiation between the Company and the Underwriter. It currently is anticipated
that the initial public offering price per Share will be $6.00. For information
regarding factors to be considered in determining the initial public offering
price see "Underwriting." Prior to this offering (this "Offering"), there has
been no public market for the Common Stock and there can be no assurance that
any significant trading market will develop or be sustained. Application has
been made to list the Shares, and it is anticipated that, upon completion of the
Offering the Shares will be approved for listing, on the Nasdaq SmallCap Market
("Nasdaq").
 
   
    Upon completion of the Offering, the present directors, executive officers
and principal stockholders of the Company will beneficially own approximately
38.6% of the outstanding Common Stock (assuming no exercise of the option
granted to the Underwriter to cover over-allotments). See "Risk
Factors -- Concentration of Stock Ownership."
    
 
   
    The registration statement of which this Prospectus forms a part (the
"Registration Statement") also covers the offering for resale by certain
securityholders (the "Selling Securityholders") of up to 1,773,900 shares of
Common Stock (the "Selling Securityholder Securities"), 60,000 Underwriter's
Warrants and the 60,000 shares of Common Stock underlying the Underwriter's
Warrants. The Selling Securityholders have agreed not to sell any of the Selling
Securityholder Securities for a minimum of six months following completion of
the Offering. The Company will not receive any proceeds from the sale of shares
by the Selling Securityholders. See "Concurrent Offering."
    
                            ------------------------
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE
OF RISK
    AND SUBSTANTIAL DILUTION. AN INVESTMENT IN THESE SECURITIES SHOULD BE
    MADE ONLY BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
       INVESTMENT. POTENTIAL PURCHASERS SHOULD CAREFULLY CONSIDER THE
         MATTERS SET FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE 7
            AND "DILUTION".
                            ------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
    ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
       CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
 
<TABLE>
<S>                                             <C>              <C>              <C>              <C>
- --------------------------------------------------------------------------------
                                                    ESTIMATED      UNDERWRITING                       PROCEEDS TO
                                                    PRICE TO       DISCOUNTS AND     PROCEEDS TO        SELLING
                                                     PUBLIC       COMMISSIONS(1)     COMPANY(2)     SECURITYHOLDERS
</TABLE>
 
- --------------------------------------------------------------------------------
 
<TABLE>
<S>                                             <C>              <C>              <C>              <C>
Per Share.......................................         $               $                $
- --------------------------------------------------------------------------------------------------------------------
Total(3)........................................         $               $                $
</TABLE>
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Does not include additional compensation to be received by the Underwriter
    in the form of (i) a non-accountable expense allowance of 3% of the gross
    proceeds of this Offering, or $0.18 per share (for an aggregate amount of
    $108,000, or $124,200 if the over-allotment option described in note 3 below
    is exercised in full), of which $35,000 has been paid to date; (ii) warrants
    to purchase 60,000 additional shares of Common Stock (the "Underwriter's
    Warrants"); and (iii) the retention of the Underwriter by the Company for a
    period of 24 months commencing upon completion of the Offering at a monthly
    fee of $3,000 (for an aggregate fee of $72,000). In addition, the Company
    has agreed to indemnify the Underwriter against certain liabilities under
    the Securities Act of 1933, as amended (the "Securities Act"). See
    "Underwriting."
 
(2) Before deducting expenses of the Offering (including the Underwriter's
    non-accountable expense allowance) estimated at $      ($      ) per share,
    or $      ($      ) per share if the over-allotment option described in note
    3 below is exercised in full, payable by the Company. See "Use of Proceeds."
 
(3) The Company has granted the Underwriter a 30-day over-allotment option to
    purchase up to 90,000 additional shares of Common Stock on the same terms
    set forth above, solely to cover over-allotments, if any. If the
    Underwriter's over-allotment option is exercised in full, the total Price to
    Public, Underwriting Discounts and Commissions, and Proceeds to Company will
    be $      , $      and $      , respectively.
 
                            ------------------------
 
    The Shares are offered by the Underwriter on a "firm commitment" basis,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriter and subject to the right of the Underwriter to reject any order in
whole or in part. It is expected that delivery of certificates representing the
Shares will be made at the offices of Alexander, Wescott & Co., Inc., 63 Wall
Street, New York, NY 10005, on or about              , 1996.
                            ------------------------
                         ALEXANDER, WESCOTT & CO., INC.
                            ------------------------
           The date of this Prospectus is                     , 1996
<PAGE>   5
 
     NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATION NOT CONTAINED
HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO PURCHASE,
ANY OF THE SECURITIES OFFERED BY THIS PROSPECTUS, IN ANY JURISDICTION TO OR FROM
ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF
AN OFFER, IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE
ISSUANCE OR SALE OF ANY SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH HEREIN SINCE THE DATE HEREOF.
 
THE INSIDE FRONT COVER OF THE PROSPECTUS CONTAINS FOUR PHOTOGRAPHS -- (1) BAGELS
    SURROUNDING A CUP OF GOLDBERG'S COFFEE; (2) A BAGEL SANDWICH; (3) A DELI
        PLATTER; AND (4) A FRONT VIEW OF ONE OF THE COMPANY'S GOLDBERG'S
                  STORES -- SURROUNDING THE "GOLDBERG'S" LOGO.
 
     The Company currently is not a reporting company under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). As a result of the
offering made hereby, the Company will become subject to the periodic and other
informational requirements of the Exchange Act. The Company intends to
distribute to its shareholders Annual Reports containing audited financial
statements and may distribute quarterly reports as determined by the Board of
Directors of the Company. The Company's fiscal year ends October 31.
 
                            ------------------------
 
     IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>   6
 
                               PROSPECTUS SUMMARY
 
     The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
Investors should carefully consider the information set forth under the heading
"Risk Factors." Unless otherwise indicated, the information presented in this
Prospectus assumes that the Underwriter's over-allotment option will not be
exercised. Unless otherwise indicated, references to the Company's Preferred
Stock include both redeemable and non-redeemable preferred stock.
 
                                  THE COMPANY
 
     All American Food Group, Inc. (together with its wholly owned subsidiaries,
the "Company") franchises two distinct bagel store concepts, distributes bagel
bakery equipment and currently operates four retail bagel stores. All of the
Company's bagels are prepared using the Company's proprietary bagel mix and
dough conditioner, in the "Old World" style, by first boiling and then baking
the dough using the Company's bagel kettle and bagel oven. The Company believes
that this process and the use of its proprietary ingredients and its equipment
ensure the consistent preparation of premium quality bagels with a shine, crust,
texture and overall flavor that distinguish its products from those of its
competitors.
 
     The Company franchises its concepts and operates its bagel stores under the
names "Goldberg's Original Old World Bagels" ("Goldberg's") and "Sammy's New
York Bagels" ("Sammy's"). Stores franchised under the Goldberg's name and
concept offer a traditional bagel/delicatessen menu, consisting of bagels,
spreads, sandwiches, salads, soups and "appetizing" bakery items. Sammy's stores
differ from Goldberg's stores in that they offer bagels and related dairy items
in a kosher store, under national Kof-K Kosher Supervision. Management believes
that Sammy's is the only franchised food chain subject to national kosher
certification currently available in the United States.
 
   
     The Company's operations are based on those of a group of bagel shops
operating in New York and New Jersey under variations of the "Goldberg" name
since 1938. In October 1993, the Company acquired two such restaurants (one of
which subsequently was sold), together with exclusive franchise rights to their
recipes, flours, mixes and equipment and the prior owners' related bagel bakery
equipment business. (The Goldberg family continues to operate ten bagel stores
that are not affiliated with the Company and, subject to certain noncompetition
covenants, may open additional stores in the future.) In September 1994, the
Company acquired three Sammy's stores (one of which subsequently was sold) and a
commissary. Since its acquisition of the Goldberg's and Sammy's stores, the
Company has engaged in an extensive process of analyzing, standardizing and
documenting all aspects of its retail bagel operations, preparing franchise
materials and developing its franchise system and program. In addition, it
retrofitted one of the Goldberg's locations to serve as a prototype store for
purposes of marketing franchises and training personnel. As of July 31, 1996,
the Company's retail system consisted of six Goldberg's and six Sammy's stores
located in four states, including two Goldberg's and two Sammy's stores owned
and operated by the Company and four Goldberg's and five Sammy's stores operated
under franchise or license arrangements with the Company. As of July 31, 1996,
two additional Goldberg's and two additional Sammy's stores to be operated under
franchise or license arrangements with the Company, and one Company-owned
Goldberg's store, were under development and scheduled to open by October 31,
1996.
    
 
     The Company also distributes and services its bagel bakery equipment for
use by its franchisees and by unaffiliated purchasers. During the years 1990
through 1995, the Company and its predecessor provided equipment and other
services to over 100 separate stores. The Company specializes in providing
equipment and services to restaurants and bakeries utilizing the "Old World"
method of boiling, then baking bagels utilizing revolving tray ovens. Management
believes that the Company is the only franchiser of bagel stores that provides
its equipment directly to its franchisees.
 
     The Company intends to expand its retail operations primarily through
franchising. Management believes that food service franchising in general, and
the franchising of bagel restaurants in particular, present a unique opportunity
for success in the current consumer and franchise markets. According to industry
and government
 
                                        3
<PAGE>   7
 
   
statistics, U.S. per capita bagel consumption (currently an average of eight
bagels per person annually) currently is growing at the rate of 8% annually and
rose 45% over the last five years. Management believes that this increased
demand for bagels arises primarily from increased consumer demand for healthier,
low-fat food products and that the versatility, convenience and relatively low
price of bagels add to their appeal. In keeping with this growing consumer
demand, bagel shops were selected by Entrepreneur magazine as among the "hottest
new franchises" for both 1995 and 1996.
    
 
     Management believes that the Company has a unique combination of
characteristics that will help it to build a successful nationwide chain of
franchised bagel restaurants under both of its concepts. The Company's key
competitive strengths include the following:
 
          - Quality Products.  Management believes that the key to the Company's
     success lies with the quality of its products. Therefore, all of the
     Company's bagels are prepared in the "Old World" style, using the Company's
     proprietary bagel mix and dough conditioner, by first boiling and then
     baking the dough using the Company's bagel kettle and bagel oven. The
     Company believes that this process and the use of its proprietary
     ingredients and its equipment ensure the consistent preparation of premium
     quality bagels with a shine, crust, texture and overall flavor that
     distinguish its products from those of its competitors.
 
          - Experience.  The Company's products and operating systems are based
     on those developed by the Goldberg family during the 58 years of operation
     of its family-owned bagel shops. The Company's products and operating
     systems are the product of this half-century of experience.
 
          - Complementary Concepts.  Management believes that the Company's
     franchise program is unique in offering two complementary bagel concepts.
     Management also believes that the availability of these two concepts
     uniquely positions the Company to benefit from economies of scale in
     purchasing, while permitting it to penetrate distinct segments of the bagel
     market.
 
          - Kosher Concept and Production Facilities.  Management believes that
     Sammy's is the only franchised food chain subject to national kosher
     certification currently available in the United States. In addition to the
     market for kosher products by consumers requiring kosher foodstuffs by
     reason of dietary restrictions in connection with their religious faith,
     management believes that a market for kosher products exists among
     consumers who are not subject to such restrictions, but who view kosher
     certification as a sign of high quality, authenticity and careful
     preparation.
 
   
          - Equipment Business.  Management believes that the Company is unique
     in designing, manufacturing and distributing its bagel bakery equipment and
     providing consulting services in connection with the sale and installation
     of such equipment. Management believes that this capability provides the
     Company with a distinct advantage in equipping and advising its franchise
     outlets and in ensuring the quality of its products.
    
 
     The Company was incorporated under the laws of the State of New Jersey on
September 27, 1993, under the name "Jutland Food Group, Inc." for the purpose of
establishing a chain of franchised bagel restaurants using the recipes,
procedures, experience and expertise of an existing, well-seasoned bagel
restaurant and bakery operation. The Company changed its name to "All American
Food Group, Inc." on October 24, 1995. Its executive offices are located at 9
Law Drive, Fairfield, New Jersey 07006 and its telephone number is (201)
244-9336.
 
                                        4
<PAGE>   8
 
                                  THE OFFERING
 
   
<TABLE>
<S>                                        <C>
Common Stock Offered by the Company.....   600,000 shares
Common Stock Outstanding Before the
  Offering(1)...........................   3,735,200 shares
Common Stock to be Outstanding After the
  Offering(1)...........................   4,335,200 shares
Proposed Nasdaq SmallCap Symbol(2)......   "AAFG"
Use of Proceeds.........................   Mandatory redemption of 175,000 shares of currently
                                           outstanding Preferred Stock; opening of
                                           Company-owned flagship stores; consolidation,
                                           integration and expansion of existing facilities
                                           including the expansion or relocation of commissary
                                           facilities and the relocation of corporate
                                           headquarters; expansion of equipment inventory;
                                           marketing and promotional activities; and working
                                           capital and general corporate purposes.
Risk Factors............................   The securities offered hereby involve a high degree
                                           of risk and immediate and substantial dilution.
                                           Investors should purchase the securities offered
                                           hereby only if they can afford the loss of their
                                           entire investment. See "Risk Factors" and
                                           "Dilution."
</TABLE>
    
 
- ---------------
   
(1) Does not include 60,000 shares of Common Stock issuable upon exercise of the
    Underwriter's Warrants or the effects of consummation Modification and
    Settlement Agreement between the Company and Howard Goldberg. See
    "Underwriting" and "Business -- Renegotiation of Certain Acquisition Terms."
    
 
(2) The Company has applied to list the Common Stock on the Nasdaq SmallCap
    Market. However, there can be no assurance as to when, if ever, the Common
    Stock will be approved for listing or that, if listed, any significant
    trading market will develop or be sustained. See "Risk Factors -- Arbitrary
    Offering Price," "-- No Prior Public Market for the Common Stock; Possible
    Volatility of Stock Price" and "-- Continued Nasdaq Listing; Potential
    Adverse Effects of Delisting."
 
                                        5
<PAGE>   9
 
                           SUMMARY OF FINANCIAL DATA
 
     The summary financial data set forth below are derived from the
Consolidated Financial Statements of the Company and its subsidiaries appearing
elsewhere in this Prospectus. The Consolidated Financial Statements of the
Company as of, and for the six months ended, April 30, 1996 and 1995 and for the
three months ended January 31, 1996 and the year ended January 31, 1996, as
aggregated, are unaudited. The summary financial data should be read in
conjunction with, and are qualified in their entirety by reference to, the
Consolidated Financial Statements of the Company and the Notes thereto, and
"Management's Discussion and Analysis or Plan of Operation," included elsewhere
in this Prospectus. At the time of its formation in September 1993, the
Company's fiscal year end was January 31. During calendar year 1995, the Company
changed its fiscal year end to October 31.
 
STATEMENT OF OPERATIONS DATA:
 
   
<TABLE>
<CAPTION>
                                                              THREE
                                                             MONTHS            YEAR
                                                NINE          ENDED           ENDED               SIX MONTHS ENDED APRIL 30,
                                               MONTHS        JANUARY       JANUARY 31,
                              YEAR ENDED        ENDED          31,             1996          ------------------------------------
                              JANUARY 31,    OCTOBER 31,      1996       (AGGREGATED)(1)/          1996                1995
                                 1995           1995        (UNAUDITED)    (UNAUDITED)         (UNAUDITED)         (UNAUDITED)
                              -----------    -----------    ---------    ----------------    ----------------    ----------------
<S>                           <C>            <C>            <C>          <C>                 <C>                 <C>
Revenues...................   $ 1,982,978    $ 2,350,268    $ 493,424      $  2,843,692         $   1,138,955       $   1,334,727
Net loss...................   $(1,062,621)   $(1,151,545)   $(385,705)     $ (1,537,250)        $    (752,954)      $    (856,656)
Net loss per share.........   $     (0.28)   $     (0.30)   $   (0.11)     $      (0.41)        $       (0.39)      $       (0.20)
Weighted average number of
  common shares
  outstanding..............     3,857,237      3,777,370    3,777,370         3,777,370             3,777,975           4,196,271
</TABLE>
    
 
- ---------------
(1) Represents the total of results for the nine-month fiscal period ended
    October 31, 1995 and the three-month interim period ended January 31, 1996.
 
BALANCE SHEET DATA (UNAUDITED):
 
   
<TABLE>
<CAPTION>
                                                                            APRIL 30, 1996
                                                                     -----------------------------
                                                                       ACTUAL       AS ADJUSTED(1)
                                                                     -----------    --------------
<S>                                                                  <C>            <C>
Current assets....................................................   $ 1,236,042     $  2,776,042
Current liabilities...............................................     1,054,760        1,054,760
Working capital...................................................       181,282        1,721,282
Total assets......................................................     2,701,582        5,141,582
Total long term debt..............................................   $    57,817     $     57,817
Deferred franchising revenue......................................       193,143          193,143
Redeemable preferred stock........................................   $   707,540     $    207,540
Common stock......................................................   $ 3,360,136     $  6,300,136
Non-redeemable preferred stock....................................   $   393,043     $    393,043
Accumulated deficit...............................................   $(3,064,857)    $ (3,064,857)
</TABLE>
    
 
- ---------------
   
(1) As adjusted to give effect to the sale, by the Company, of the 600,000
    Shares of Common Stock offered hereby, the application of the estimated net
    proceeds therefrom, and the terms of the Modification and Settlement
    Agreement between the Company and Howard Goldberg. See "Use of Proceeds" and
    "Business -- Renegotiation of Certain Acquisition Terms."
    
 
                                        6
<PAGE>   10
 
                                  RISK FACTORS
 
     The securities offered hereby are highly speculative and involve a high
degree of risk and substantial dilution. An investment in these securities
should be made only by investors who can afford the loss of their entire
investment. In addition to the factors set forth elsewhere in this Prospectus,
prospective investors should give careful consideration to the following risk
factors in evaluating the Company and its business before purchasing the
securities offered hereby.
 
LIMITED OPERATING HISTORY; OPERATING LOSSES
 
   
     The Company has been in existence for less than three years, the four
stores owned and operated by the Company have been in operation under the
Company's management for 34, 21, 20 and five months, respectively, and seven of
the nine stores currently in operation under franchise or license arrangements
have been in operation for less than 12 months. Further, the Company incurred
net losses of $1,062,621 and $1,537,250 in its fiscal year ended January 31,
1995 and the 12-month period ended January 31, 1996, respectively (the two
12-month fiscal periods since its formation) and, as of April 30, 1996, had an
accumulated deficit since inception of approximately $3,065,000. Such operating
losses and deficits reflect the cost of developmental and other start-up
activities including, in particular, the acquisition of the Company's initial
retail stores and equipment business and the development of its franchise
program. See "Business -- Overview" and "-- History of the Company." The Company
expects to continue to incur significant losses in the future as it implements
its expansion program. See "Business -- Plan of Operations."
    
 
     The Company's operations are subject to numerous risks associated with
establishing any new business, including unforeseen expenses, delays and
complications, as well as specific risks of the food service and franchising
industries. There can be no assurance that the Company will achieve or sustain
profitable operations or that it will be able to remain in business. In
particular, there can be no assurance that the Company-owned and operated stores
will operate profitably, that the Company will succeed in opening additional
stores successfully, that stores currently operating under franchise or license
arrangements will operate successfully or that the Company will be successful in
selling additional franchises.
 
NEED FOR ADDITIONAL WORKING CAPITAL
 
     The Company anticipates that its capital resources, including the net
proceeds from this Offering, will be adequate to satisfy its capital
requirements for at least 12 months following completion of the Offering. See
"Use of Proceeds" and "Management's Discussion and Analysis or Plan of
Operation -- Liquidity and Capital Resources." During that time, the Company
intends to expand through the sale of additional franchises and to seek
additional customers for its bagel bakery equipment, which expansion will
require the expenditure of working capital. The Company's future capital
requirements will depend upon many factors, including the Company's ability to
market its franchises and operate its own stores successfully, as well as market
developments and cash flow from operations. To the extent that the net proceeds
of this Offering and cash generated from operations are insufficient to fund the
Company's activities, the Company will be required to raise additional funds
through bank borrowings or equity or debt financings. There can be no assurance
that additional financing, if required, will be available at all or in amounts
or on terms acceptable to the Company. In addition, any equity financing could
result in dilution to the Company's existing shareholders. Failure to obtain
additional working capital in a timely manner or on acceptable terms could have
a material adverse effect on the Company, its operations, financial results and
prospects. See "Business," "Management's Discussion and Analysis or Plan of
Operation -- Liquidity and Capital Resources" and the Consolidated Financial
Statements of the Company included elsewhere herein.
 
SEASONAL AND QUARTERLY FLUCTUATIONS
 
     The Company's interim results of operations may be affected by the timing
of the sale of franchises and the opening of new stores, receipt of franchise
and market area developer fees and seasonal factors, such as weather conditions,
in the areas where stores are located. In addition, the Company's results may be
affected by the timing of expenses associated with its expansion.
 
                                        7
<PAGE>   11
 
DEPENDENCE ON FRANCHISEES
 
     The Company will realize a substantial portion of its revenues from initial
franchise fees, ongoing royalty payments from its franchisees and the sale of
foodstuffs and equipment to its franchisees. The Company is therefore
substantially dependent upon its ability to attract, retain and contract with
suitable franchisees, and the ability of these franchisees to open and operate
their stores successfully. Should the Company experience difficulty in
attracting suitable franchisees, or should the Company's franchisees encounter
business or operational difficulties, the Company's revenues will be adversely
affected. Such a reduction in revenues may also have an adverse effect on the
Company's ability to sell new franchises and on its financial results and
prospects. Consequently, the Company's financial prospects are directly related
to the success of its franchisees, over which the Company has no direct control.
There can be no assurance that either the Company or its franchisees will be
able to develop new franchises, or operate the Company's bagel stores,
successfully.
 
EXPANSION
 
     The opening and success of the Company's bagel stores will depend on
various factors, including the availability of suitable sites; the ability of
franchisees to negotiate acceptable lease terms for new locations, to obtain
construction and any other necessary permits in a timely manner, and to meet
construction and opening schedules; the Company's ability to manage its
anticipated expansion and to hire and train personnel; and general and local
economic and business conditions. The foregoing factors are not within the
control of the Company.
 
   
     The Company's proposed expansion will also require the implementation of
enhanced operational and financial systems and will require additional
management, operational and financial resources. Failure to implement these
systems and add these resources could have a material adverse effect on the
Company's operations, financial results and prospects. There can be no assurance
that the Company will be able to manage its expanding operations effectively or
that it will be able to maintain or accelerate its growth. In addition, there
can be no assurance of the viability of the Company's concepts in new geographic
regions or particular local markets.
    
 
COMPETITION; EASE OF ENTRY INTO BUSINESS
 
   
     The food service industry, in general, and the fast-food and take-out
sectors in particular, are intensely competitive. The Company competes, and can
be anticipated to compete, against well established food service companies with
substantially greater product and name recognition and with substantially
greater financial, marketing and distribution capabilities than the Company's,
as well as against a large number of local food establishments that offer
similar or competitive products. In addition, management believes that the
start-up costs associated with opening a retail food establishment offering
similar products on a stand-alone basis are comparable to the start-up costs of
the Company's bagel stores and, accordingly, such start-up costs are not an
impediment to entry into the retail bagel business. Further, as the demand for
bagels increases and consumers become more familiar with the product, they also
may be expected to become increasingly discriminating in selecting bagels based
on quality and value. There can be no assurance that the Company can compete
successfully in this complex and changing market.
    
 
FOOD SERVICE INDUSTRY
 
   
     Food service businesses are often affected by changes in consumer and
competitive conditions, including changes in consumer tastes; national,
regional, and local economic conditions and demographic trends; traffic
patterns, and the type, number, and location of competing businesses. Adverse
publicity resulting from food quality, illness, injury, or other health concerns
or operating issues stemming from one store or a limited number of stores also
may adversely affect multi-unit chains such as the Company. In addition, factors
such as inflation, increased food, labor, and employee benefit costs, regional
weather conditions and the unavailability of experienced management and hourly
employees also may adversely affect the food service industry in general, and
the Company's operations, financial results and prospects in particular.
    
 
                                        8
<PAGE>   12
 
GOVERNMENT REGULATION
 
   
     The Company's franchise operations are subject to regulation by the Federal
Trade Commission (the "FTC") in compliance with the Uniform Franchise Act which
requires, among other things, that the Company prepare and update a
comprehensive disclosure document in connection with the sale and operation of
its franchises. The Company and its franchisees also must comply with state
franchising laws and a wide range of other state and local rules and regulations
applicable to their businesses. See "Business -- Government Regulation."
Continued compliance with this broad federal, state and local regulatory network
is essential and costly, and the failure to comply could have a material adverse
effect on the Company and its franchisees. Violations of franchising laws and/or
state laws and regulations governing substantive aspects of doing business in a
particular state could subject the Company and its affiliates to rescission
offers, monetary damages, penalties, imprisonment and/or injunctive proceedings.
In addition, under court decisions in certain states, absolute vicarious
liability may be imposed upon franchisers based upon claims made against
franchisees. The Company currently does not carry insurance against such claims,
although it intends to obtain such coverage in the future. However, there can be
no assurance that the Company will be able to obtain such coverage or that such
coverage will be sufficient to cover potential claims against the Company.
    
 
     This Prospectus does not constitute, and shall not be construed as, an
offer to sell a Goldberg's or Sammy's franchise. Such offers may be made only by
an Offering Circular in compliance with applicable state law and the Federal
Trade Commission Disclosure Rule. The description of the franchises set forth in
this Prospectus is not intended to be a complete description of a Goldberg's or
Sammy's franchise business.
 
LACK OF TRADEMARK AND PATENT PROTECTION
 
   
     The Company has filed applications to register the trademarks "Goldberg's
Original Old World Bagels" and "Goldberg's New York Bagels est. 1938" on the
United States Patent and Trademark Office principal register. Otherwise, the
Company has no registered trademark or service mark protection under federal
trademark law. While management believes that, in the food service industry,
trademarks, service marks and the look ("trade dress"), of a retail chain can be
adequately protected by common law, there can be no assurance that the absence
of protected, registered marks will not have an adverse effect on the Company's
competitive position, business or prospects. Further, although the Company
modifies and installs certain bagel bakery equipment in a proprietary manner,
the Company does not believe these refinements are patentable. Therefore, there
can be no assurance as to whether, to what extent, or for what period of time
the Company may enjoy a competitive advantage based on the availability of its
equipment. In addition, it is the Company's practice to protect its proprietary
dough conditioner, bagel mix and bagel dough by relying on trade secret laws and
confidentiality agreements. There can be no assurance that the confidentiality
of its trade secrets will be maintained or that others will not independently
develop or obtain access to the same, comparable or improved recipes and
formulas. See "Business -- Trademarks and Service Marks."
    
 
DEPENDENCE ON KEY PERSONNEL
 
     The Company is substantially dependent upon the personal efforts and
abilities of its senior management. See "Management." The loss of any of the
Company's senior management personnel could adversely affect the Company until
such time, if any, as a suitable replacement is found. The Company's ability to
develop and market its products and to achieve and maintain its competitive
position depends, in large part, on its ability to attract and retain qualified
personnel. Competition for such personnel is intense and there can be no
assurance that the Company will be able to attract and retain such personnel.
 
CONCENTRATION OF STOCK OWNERSHIP
 
   
     Upon completion of this Offering, the Company's present directors,
executive officers and principal shareholders will beneficially own
approximately 38.6% of the Common Stock of the Company. Although other
shareholders will have the opportunity to consider and vote upon those matters
affecting the Company that are submitted to a vote of the shareholders, they
will not have the ability to approve or disapprove any such matters without the
concurrence of the majority of shareholders. Consequently, decisions regarding
the
    
 
                                        9
<PAGE>   13
 
   
management and operations of the Company will continue to be made by the current
shareholders and purchasers of Common Stock in this Offering may not be able to
influence the management of the Company and its business. Because they may not
be able to control the decisions made by current shareholders with respect to
management and operations of the Company, no one should invest in the Company
unless he or she is willing to entrust all aspects of the Company's business to
the discretion of such shareholders. See "Management" and "Principal
Shareholders."
    
 
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY
 
     As permitted pursuant to the corporate law of the State of New Jersey, the
Company's state of incorporation, the Company's Amended and Restated Certificate
of Incorporation (the "Charter") and Amended and Restated By-Laws (the
"By-Laws") require that the Company indemnify its directors and officers against
certain liabilities incurred in their service in such capacities. In addition,
the Charter provides that the personal liability of directors and officers of
the Company to the Company and its shareholders shall be limited under certain
circumstances. See "Management -- Limitation of Liability and Indemnification
Matters."
 
SUBSTANTIAL DILUTION
 
   
     Assuming an initial public offering price of $6.00 per share, purchasers of
the Shares offered hereby will incur immediate dilution in the net tangible book
value from the Offering price of $5.24 per share, or 87% of the initial public
offering price. See "Dilution."
    
 
NO DIVIDENDS
 
     The Company has not paid any cash or other dividends on its Common Stock
since its inception and does not anticipate paying any such dividends in the
foreseeable future. It is anticipated that earnings, if any, will be used in the
Company's operations and to finance the expansion of its business. See "Dividend
Policy" and "Management's Discussion and Analysis or Plan of
Operation -- Liquidity and Capital Resources."
 
DISCRETION IN USE OF PROCEEDS DESIGNATED FOR WORKING CAPITAL
 
   
     The Company will have broad discretion with respect to the application of
approximately $1,365,000, or 46.4%, of the net proceeds of this Offering. While
such funds are to be applied for working capital and general corporate purposes
in furtherance of the Company's business, investors will be reliant on
management as to the specific application of these amounts. See "Use of
Proceeds."
    
 
SHARES ELIGIBLE FOR FUTURE SALE
 
   
     Upon completion of the Offering, the Company will have outstanding an
aggregate of 4,335,200 shares of Common Stock. Of these, the 600,000 Shares
issued in the Offering will be freely transferable without restriction under the
Securities Act (excluding any Shares purchased in the Offering by any person who
is or thereby becomes an "affiliate" of the Company). All of the 3,735,200
shares outstanding immediately prior to the Offering were issued in private
placements without registration under the Securities Act and, therefore, are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act.
    
 
     Of the 3,735,200 shares outstanding immediately prior to the Offering,
1,773,900 shares (the "Private Placement Shares") were issued in the Private
Placements and, pursuant to registration rights granted in connection therewith,
all of the Private Placement Shares are being registered for resale pursuant to
the Registration Statement of which this Prospectus forms a part. So long as
such shares remain subject to an effective registration statement, and following
any sale pursuant thereto, such shares will be freely transferable without
restriction under the Securities Act (subject to a contractual limitation on
sales within six months following completion of the Offering). See "Concurrent
Offering." The remaining 1,961,300 shares of Common Stock outstanding prior to
this Offering are "restricted securities." In addition, 240,000 shares
underlying currently outstanding options and 60,000 Shares underlying the
Underwriter's Warrants will, upon issuance, be "restricted securities" and any
shares of Common Stock issued upon conversion of the 1,352,503
 
                                       10
<PAGE>   14
 
   
shares of Preferred Stock outstanding prior to completion of the Offering, prior
to the expiration of the applicable holding period with respect thereto likewise
will be "restricted securities."
    
 
   
     The Company is unable to predict the effect that sales of Private Placement
Shares or sales under Rule 144 may have on the then prevailing market price of
the Common Stock, but such sales may have a substantial depressing effect on
such market price. However, holders of the 1,773,900 Private Placement Shares
who are not officers or directors of the Company have agreed not to sell, assign
or transfer any of their shares of Common Stock for six months from the
effective date of the Registration Statement of which this Prospectus forms a
part, without the prior consent of the Underwriter. The officers and directors
of the Company have agreed not to, directly or indirectly, sell, offer to sell,
grant an option for the sale of, transfer, assign, pledge, hypothecate or
otherwise encumber any shares of the Company's Common Stock currently held
thereby for a period of 13 months from the effective date of the Registration
Statement. The remaining 1,961,300 shares of Common Stock that will be
"restricted securities" immediately subsequent to the Offering will become
eligible for sale at various time beginning in September 1996. See
"Underwriting."
    
 
ARBITRARY OFFERING PRICE
 
     The initial public offering price of the Common Stock will be determined by
negotiation between the Company and the Underwriter. See "Underwriting." Such
price will not necessarily relate to the Company's asset value, earnings, net
worth, financial condition or any other established criteria of value and should
not be regarded as an indication of the actual value or future market price of
the Common Stock.
 
NO PRIOR PUBLIC MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
 
     Prior to this Offering there has been no public market for the Company's
Common Stock and there can be no assurance that an active public trading market
for the Company's Common Stock will develop or be sustained. The absence of an
active trading market would adversely affect the liquidity of the Common Stock
and, consequently purchasers of Shares in the Offering could experience
substantial difficulty in selling these securities. The initial public offering
price will be determined by negotiation between the Company and the Underwriter
and may not bear any relationship to the market price for the Common Stock
subsequent to the Offering. See "-- Arbitrary Offering Price" and
"Underwriting." In addition, the trading price for the Common Stock may be
highly volatile and could be subject to significant fluctuations in response to
variations in the Company's quarterly operating results, general conditions in
the food service industry or the general economy, and other factors. In
addition, the stock market is subject to price and volume fluctuations affecting
the market price for public companies generally, or within broad industry
groups, which fluctuations may be unrelated to the operating results or other
circumstances of a particular company. Such fluctuations may adversely affect
the liquidity of the Common Stock, as well as the price that holders may achieve
for their shares upon any future sale.
 
CONTINUED NASDAQ LISTING; POTENTIAL ADVERSE EFFECTS OF DELISTING
 
     The standards for initial listing on the Nasdaq SmallCap Market require
that a company must have (i) at least $4,000,000 in total assets; (ii) at least
$2,000,000 in capital and surplus; (iii) a minimum bid price of $3.00 per share;
(iv) "public float" (the market value of Common Stock held by non-insiders) of
at least $2,000,000; and (v) at least two market makers in its listed security.
Once listed, a company must maintain (i) at least $2,000,000 in total assets;
(ii) $1,000,000 in capital and surplus; (iii) a minimum bid price of $1.00 per
share; (iv) public float of at least $1,000,000; and (v) at least two market
makers. If a company falls below the bid price maintenance standard, it may
maintain its listing on Nasdaq if the market value of public float is at least
$1,000,000 and the company has at least $2,000,000 in capital and surplus. The
Company has applied to list the Common Stock on the Nasdaq SmallCap Market and
anticipates that the Common Stock will be eligible for listing upon completion
of the Offering and upon official notice of issuance. However, there can be no
assurance that the Company will be able to maintain the standards for continued
listing of the Common Stock. Delisting of the Common Stock would adversely
affect the price of the Common Stock and the ability of holders to sell their
shares. In addition, in order to be relisted on Nasdaq, the Company would be
 
                                       11
<PAGE>   15
 
required to comply with the initial listing requirements, which are
substantially more onerous than the maintenance standards.
 
     If the Company were unable to satisfy the Nasdaq maintenance requirements
for continued listing and the share price for Common Stock were to fall below
$5.00 per share, unless the Company satisfies certain asset or revenue tests (at
least $5,000,000 in net tangible assets if in business less than three years, at
least $2,000,000 in net tangible assets if in business at least three years, or
average revenues of at least $6,000,000 for the last three years), the Common
Stock would become subject to the so-called "penny stock" rules promulgated by
the Securities and Exchange Commission (the "Commission"). Under the penny stock
rules, a broker or dealer selling penny stock to anyone other than an
established customer or "accredited investor" (generally, an individual with net
worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000
together with his or her spouse) must make a special suitability determination
for the purchaser and must receive the purchaser's written consent to the
transaction prior to sale, unless the broker or dealer or the transaction
otherwise is exempt. In addition, the penny stock rules require the broker or
dealer to deliver, prior to any transaction, a disclosure schedule prepared by
the Commission relating to the penny stock market, unless the broker or dealer
or the transaction otherwise is exempt. A broker or dealer also is required to
disclose commissions payable thereto and to the registered representative and
current quotations for the securities. In addition, a broker or dealer is
required to send monthly statements disclosing recent price information with
respect to the penny stock held in a customer's account and information with
respect to the limited market in penny stocks. These additional sales practice
and disclosure requirements could adversely effect the level of trading activity
in the secondary market and could impede the sale of the Company's Common Stock
in that market, with a concomitant adverse effect on the price of the Common
Stock in the secondary market.
 
POTENTIAL ADVERSE EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
 
   
     The corporate law of the State of New Jersey, the Company's state of
incorporation, and the Company's Charter, contain provisions that may discourage
proposals or bids to acquire the Company. Such provisions authorize the issuance
of a maximum of 4,000,000 shares of Preferred Stock (of which 1,352,503 shares
were outstanding as of July 31, 1996) on terms which may be fixed by the
Company's Board of Directors without shareholder action. The terms of any series
of Preferred Stock, which may include priority claims to assets and dividends,
and special voting rights, could adversely affect the rights of holders of the
Common Stock. The issuance of Preferred Stock could make the takeover of the
Company or the removal of management of the Company more difficult, discourage
hostile bids for control of the Company in which shareholders may receive
premiums for their shares of Common Stock, or otherwise dilute the rights of
holders, and the market price of the Common Stock. See "Description of
Securities -- Preferred Stock."
    
 
LIMITED OFFERING EXPERIENCE OF THE UNDERWRITER
 
     The Underwriter has been in business for approximately two years and, as of
April 30, 1996, employed approximately seven brokers in two offices. The
Underwriter has not previously acted as an underwriter in a public offering.
Consequently, there can be no assurance that the Underwriter's lack of
experience and relatively small size will not adversely affect the Offering and
the subsequent development, if any, of a trading market for the Company's Common
Stock. See "Underwriting."
 
                                       12
<PAGE>   16
 
                                    DILUTION
 
   
     Dilution represents the difference between the public offering price per
share paid by investors who purchase in this Offering and the pro forma net
tangible book value per share immediately after completion of the Offering. Pro
forma net tangible book value per share is determined by dividing the difference
between total tangible assets and total liabilities by the total number of
outstanding shares of Common Stock. At April 30, 1996, after giving effect to
the closing of the Private Placements the Company's net tangible book value per
share of Common Stock was $0.10.
    
 
   
     After giving effect to the Private Placements, the sale of the 600,000
Company Shares offered hereby, and the initial application of the estimated net
proceeds therefrom as described at "Use of Proceeds," the adjusted pro forma net
tangible book value per share of Common Stock would have been $0.76 at April 30,
1996 (after deducting underwriting discounts and commissions and estimated
expenses of the Company in connection with the Offering in the aggregate amount
of $500,000). Investors purchasing Common Stock in the Offering therefore will
experience immediate dilution of $5.24 in the net tangible book value of their
Common Stock, while existing shareholders will benefit from an immediate
increase of $0.66 per share in the net tangible book value of their Common
Stock.
    
 
     The following table illustrates the foregoing calculations:
 
   
<TABLE>
    <S>                                                                     <C>      <C>
    Assumed public offering price per share......................................    $6.00
    Net tangible book value per share before Offering...................... $0.10
    Increase in net tangible book value per share attributable to new
      investors............................................................ $0.66
                                                                            -----
    Pro forma net tangible book value per share after Offering...................    $0.76
                                                                                     -----
    Dilution per share to new investors(1).......................................    $5.24
                                                                                     =====
</TABLE>
    
 
- ---------------
   
(1) If the Underwriter's over-allotment option is exercised in full, the
     adjusted pro forma net tangible book value after the issuance and sale of
     the Common Stock would be $0.85 per share, which would result in dilution
     to new investors in the Offering of $5.15 per share.
    
 
     The following table sets forth, as of April 30, 1996, the number of shares
purchased from the Company, the total consideration paid, the average price per
share paid by existing holders of Common Stock and the price per share to be
paid by purchasers in the Offering, based on an assumed initial public offering
price of $6.00 per Share. See "Capitalization" and "Underwriting."
 
<TABLE>
<CAPTION>
                                                 SHARES PURCHASED       TOTAL CONSIDERATION      AVERAGE
                                               --------------------    ---------------------      PRICE
                                                NUMBER      PERCENT      AMOUNT      PERCENT    PER SHARE
                                               ---------    -------    ----------    -------    ---------
<S>                                            <C>          <C>        <C>           <C>        <C>
Existing common shareholders................   3,735,200      86.2%    $3,360,136      48.3%      $0.90
Purchasers in the Offering..................     600,000      13.8%     3,600,000      51.7%      $6.00
                                               ---------     ------     ---------     ------
     Total..................................   4,335,200     100.0%    $6,960,136     100.0%
                                               =========     ======     =========     ======
</TABLE>
 
                                       13
<PAGE>   17
 
                                USE OF PROCEEDS
 
     The net proceeds to the Company from the sale of the Shares offered hereby
are estimated to be $2,940,000 ($3,399,000 if the Underwriter's over-allotment
option is exercised in full). The Company intends to apply the net proceeds
approximately as follows:
 
   
          (i) $325,000, or 11.1%, for the mandatory redemption of shares of
     Preferred Stock redeemable 30 days after the completion of this Offering.
    
 
          (ii) $400,000, or 13.6%, to open two additional Company-owned flagship
     stores;
 
          (iii) $350,000, or 11.9%, to expand or relocate the Company's Lodi, NJ
     commissary;
 
          (iv) $250,000, or 8.5%, to expand the Company's inventory of equipment
     for resale;
 
          (v) $150,000, or 5.1%, to relocate the Company's corporate
     headquarters in order to consolidate and integrate the Company's facilities
     at one location;
 
          (vi) $100,000, or 3.4%, for marketing, promotional, advertising and
     public relations activities directed toward both retail customers and
     potential franchisees; and
 
   
          (vii) $1,365,000, or 46.4%, for working capital and general corporate
     purposes, which may include, among other things, salaries of additional
     management personnel and the costs of possible acquisition of businesses
     complementary to the Company's operations. Currently, the Company has no
     plans, intentions, commitments, understandings or arrangements with respect
     to any such acquisitions.
    
 
   
     The Company anticipates, based on current plans and assumptions relating to
its operations, that the proceeds of this Offering, together with existing
resources and cash generated from operations, if any, will be sufficient to
satisfy the Company's contemplated cash requirements for at least the 12-month
period subsequent to completion of the Offering. There can be no assurance,
however, that the Company's cash requirements during this period will not exceed
its available resources. See "Risk Factors -- Need for Additional Working
Capital."
    
 
   
     The allocation of the net proceeds of this Offering set forth above
represents the Company's best estimates based upon its current plans and certain
assumptions regarding industry and general economic conditions and the Company's
future revenues and expenditures. If any of these factors changes, the Company
may find it necessary or advisable to reallocate some of the proceeds within the
above-described categories or to use a portion thereof for other purposes. See
"Risk Factors -- Discretion in Use of Proceeds Designated for Working Capital."
    
 
     Proceeds not immediately required for the purposes described above will be
invested in short-term United States government securities, short-term bank
certificates of deposit, money market funds or other investment grade
short-term, interest bearing instruments.
 
                                       14
<PAGE>   18
 
                                 CAPITALIZATION
 
     The following table sets forth the actual capitalization of the Company at
April 30, 1996, and as adjusted to give effect to the sale of the Common Stock
offered hereby and application of the net proceeds of the Offering as set forth
at "Use of Proceeds." This table should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus.
 
   
<TABLE>
<CAPTION>
                                                                            APRIL 30, 1996
                                                                              (UNAUDITED)
                                                                     -----------------------------
                                                                       ACTUAL       AS ADJUSTED(1)
                                                                     -----------    --------------
<S>                                                                  <C>            <C>
Current liabilities (including current portion of long-term
  debt)...........................................................   $ 1,054,760     $  1,054,760
Long term debt and other liabilities (excluding current
  portion)........................................................   $   250,960     $    250,960
Redeemable preferred stock, no par value; Series A, 40,000 shares
  issued and outstanding (actual) and 0 shares issued and
  outstanding (as adjusted); Series B, 120,000 shares issued and
  outstanding (actual), 60,000 shares issued and outstanding (as
  adjusted)(2)....................................................   $   707,540     $    207,540
Non-redeemable convertible preferred stock, no par value; Series
  A, 150,000 shares authorized, 150,000 shares issued and
  outstanding; Series B 180,000 shares authorized, 60,000 shares
  issued and outstanding; Series C, 1,600,000 shares authorized,
  982,503 shares issued and outstanding...........................   $   393,043     $    393,043
Common Stock, no par value; 10,000,000 shares authorized,
  3,735,200 shares issued and outstanding, actual; 4,335,200
  shares outstanding, as adjusted(1)..............................   $ 3,360,136     $  6,300,136
Retained (deficit)................................................   $(3,064,857)    $ (3,064,857)
Total common stock, non-redeemable preferred stock and other
  stockholders' equity............................................   $   688,322     $  3,628,322
                                                                     ===========      ===========
</TABLE>
    
 
- ---------------
   
(1) Gives effect to the sale of 600,000 Shares of Common Stock in this Offering,
     net of expenses, the application of the estimated net proceeds therefrom
     and the terms of the Modification and Settlement Agreement between the
     Company and Howard Goldberg referred to in note 2 below. The Charter has
     been amended to authorize a total of 20,000,000 shares of Common Stock.
    
 
   
(2) The Company is obligated to redeem 40,000 shares of Series A Preferred Stock
     and 60,000 shares of Series B Preferred Stock at a redemption price of
     $5.00 per share within 30 days following completion of the Offering. Up to
     an additional 60,000 shares of Series B Preferred Stock are redeemable at a
     redemption price of $5.00 per share 24 months following completion of the
     Offering. See "Use of Proceeds" and "Description of Securities." On August
     12, 1996, the Company and Howard Goldberg entered into a Modification and
     Settlement Agreement pursuant to which, among other things, Mr. Goldberg
     agreed to convert 65,000 shares of Series A Preferred Stock to an equal
     number of shares of Common Stock and to redeem his remaining Series A
     Shares. See "Business -- Renegotiation of Certain Acquisition Terms."
    
 
                                DIVIDEND POLICY
 
     The Company has not paid any cash or other dividends on its Common Stock
since its inception and does not anticipate paying any such dividends in the
foreseeable future. The Company intends to retain any earnings for use in the
Company's operations and to finance the expansion of its business. See "Risk
Factors -- No Dividends."
 
                                       15
<PAGE>   19
 
                            SELECTED FINANCIAL DATA
 
     The following information is qualified by reference to, and should be read
in conjunction with, the Company's Consolidated Financial Statements and the
Notes thereto and "Management's Discussion and Analysis or Plan of Operation"
contained elsewhere in this Prospectus.
 
STATEMENT OF OPERATIONS DATA:
   
<TABLE>
<CAPTION>
                                                THREE
                                               MONTHS         YEAR ENDED          SIX MONTHS ENDED          THREE MONTHS ENDED
                               NINE MONTHS      ENDED        JANUARY 31,              APRIL 30,                  APRIL 30,
                 YEAR ENDED       ENDED      JANUARY 31,         1996         -------------------------   -----------------------
                 JANUARY 31,   OCTOBER 31,      1996       (AGGREGATED)(1)/      1996          1995          1996         1995
                    1995          1995       (UNAUDITED)     (UNAUDITED)      (UNAUDITED)   (UNAUDITED)   (UNAUDITED)  (UNAUDITED)
                 -----------   -----------   -----------   ----------------   -----------   -----------   ----------   ----------
<S>              <C>           <C>           <C>           <C>                <C>           <C>           <C>          <C>
Revenues:
  Store
    sales......  $ 1,178,638   $ 1,422,341   $   305,992     $  1,728,333     $   646,317   $1,045,246    $  340,325   $  514,581
  Franchising
    revenue....            0       377,201        29,949          407,150         195,639            0       165,690            0
  Equipment and
    product
    sales......      804,340       550,726       157,483          708,209         296,999      289,481       139,516      145,682
                  ----------    ----------    ----------      -----------     -----------   -----------   -----------  -----------
                   1,982,978     2,350,268       493,424        2,843,692       1,138,955    1,334,727       645,531      660,263
Operating
  expenses:
  Cost of
  sales -- equipment
    costs and
    store
    operations,
    exclusive
    of
   depreciation
    and
amortization...    1,602,538     1,739,147       327,685        2,066,832         735,268    1,147,907       407,583      582,762
  Cost of
  sales -- franchising
  activities...            0       213,408             0          213,408               0            0             0
Selling,
  general and
 administrative
  expenses.....    1,100,919     1,146,365       422,277        1,568,642         893,430      728,223       471,153      272,537
Depreciation
  and
amortization...      197,347       211,463        59,195          270,658         126,592      154,696        67,397       71,479
Acquisition
  costs........       74,256       170,352        56,784          227,136         113,568      113,568        56,784       56,784
Impairment of
  assets.......      676,038             0             0                0               0            0             0            0
                  ----------    ----------    ----------      -----------     -----------   -----------   -----------  -----------
                   3,651,098     3,480,735       865,941        4,346,676       1,868,858    2,144,394     1,002,917      983,562
                  ----------    ----------    ----------      -----------     -----------   -----------   -----------  -----------
Operating
  loss.........   (1,668,120)   (1,130,467)     (372,517)      (1,502,984)       (729,903)    (809,667 )    (357,386)    (323,299)
Interest
  expense......       38,651        21,078        13,188           34,266          23,051       46,989         9,863       18,001
                  ----------    ----------    ----------      -----------     -----------   -----------   -----------  -----------
Loss before
  extraordinary
  item.........  $(1,706,771)  $(1,151,545)  $  (385,705)    $ (1,537,250)    $  (752,954)  $ (856,656 )  $ (367,249)  $ (341,300)
Extraordinary
  item -- Gain
  from
 extinguishment
  of debt......      644,150             0             0                0               0            0             0            0
                  ----------    ----------    ----------      -----------     -----------   -----------   -----------  -----------
Net loss.......  $(1,062,621)  $(1,151,545)  $  (385,705)    $ (1,537,250)    $  (752,954)  $ (856,656 )  $ (367,249)  $ (341,300)
Net loss per
  share........  $     (0.28)  $     (0.30)  $     (0.11)    $      (0.41)    $     (0.39)  $    (0.20 )  $    (0.28)  $    (0.09)
Weighted
  average
  number of
  common shares
 outstanding...    3,857,237     3,777,370     3,777,370        3,777,370       3,777,975    4,196,271     3,778,593    3,777,570
BALANCE SHEET
  DATA:
 
<CAPTION>
                   1/31/95      10/31/95       1/31/96         4/30/95          4/30/96
                 ----------    ----------    ----------      -----------      -----------
<S>              <C>           <C>           <C>           <C>                <C>           <C>           <C>          <C>
Working capital
  (Deficit)....     (539,020)     (902,720)     (903,338)        (758,359)        181,282
Total assets...    1,743,561     1,338,794     1,820,082        1,656,902       2,701,582
Total
 liabilities...    1,170,207     1,386,967     1,493,960        1,324,848       1,305,720
Redeemable
  preferred
  stock........            0             0             0                0         707,540
Common stock...    1,277,000       876,150     1,606,150          874,400       3,360,136
Non-redeemable
  preferred
  stock........       54,000     1,022,580     1,052,580          656,600         393,043
Additional paid
  in capital...      365,000       365,000       365,000          365,000               0
Accumulated
  deficit......   (1,122,646)   (2,311,903)   (2,697,608)      (1,563,946)     (3,064,857)
</TABLE>
    
 
- ---------------
(1) Represents the total of results for the nine-month fiscal period ended
     October 31, 1995 and the three-month interim period ended January 31, 1996.
 
                                       16
<PAGE>   20
 
   
           MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
    
 
     The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and the Notes thereto included
elsewhere in this Prospectus. The discussion of results, causes and trends
should not be construed to imply any conclusion that such results or trends will
necessarily continue in the future. For purposes of the following discussion,
the Company's results for the nine months ended October 31, 1995, as reflected
in its audited financial statements for the period then ended, have been
combined with its unaudited, interim results for the three months ended January
31, 1996 to reflect results for the 12-month period ended January 31, 1996
("Fiscal 1996"), which have been compared to the results for the full fiscal
year ended January 31,1995 ("Fiscal 1995").
 
RESULTS OF OPERATIONS -- THREE-MONTH PERIODS ENDED APRIL 30, 1996 AND 1995
 
   
     Sales revenues for the three months ended April 30, 1996 (the "1996
Quarter") were $645,531, a decrease of $14,732, or 2%, from $660,263 for the
three months ended April 30, 1995 (the "1995 Quarter"). This decrease is
attributable to (i) a decrease in store sales of $174,256, or 34%, to $340,325
in the 1996 Quarter from $514,581 in the 1995 Quarter, as a result of a
reduction from five to four stores operated by the Company and (ii) a decrease
in equipment sales of $54,367, or 41%, to $79,854 in the 1996 Quarter from
$134,221 in the 1995 Quarter, primarily due to the fact that, during 1996, the
Company has focused on franchising activities rather than on sales of equipment
to unaffiliated purchasers, which decreases were substantially offset by (iii)
an increase in commissary sales of $48,201, or 320%, to $59,662 in the 1996
Quarter from $11,461 in the 1995 Quarter and (iv) the commencement of
franchising activities during 1996, which resulted in franchising revenues of
$165,690 during the 1996 Quarter, consisting of $153,700 of initial,
non-recurring market development fees and $11,990 of ongoing royalties.
    
 
     Management anticipates that future equipment and commissary sales will be
dependent upon the Company's franchising activities rather than on sales to
unaffiliated purchasers and that such sales will increase or decrease in direct
proportion to the Company's success in expanding its system of franchise stores.
 
     Cost of sales decreased by $175,179, or 30%, to $407,583 in the 1996
Quarter from $582,762 in the 1995 Quarter, primarily as a result of decreased
store and equipment sales, and, to a lesser extent, to a shift in the mix of the
Company's revenues, as decreased store and equipment sales were partially
replaced by franchise fees. Cost of sales as a percentage of product sales
decreased to 85% in the 1996 Quarter from 88% in the 1995 Quarter, reflecting
the net effect of a decrease in cost of sales attributable to the sale of two
Company-owned stores (partially offset by the opening of one additional store)
and an increase attributable to the upgrading of the Company's Lodi, New Jersey
commissary and production facility and increases in payroll and fixed overhead
costs associated with expansion of this facility.
 
     Selling, general and administrative expenses increased by $198,616, or 73%,
to $471,153 in the 1996 Quarter from $272,537 in the 1995 Quarter. This increase
is primarily due to (i) an increase in salaries and related costs of $116,687,
or 170%, to $185,271 in the 1996 Quarter from $68,584 in the 1995 Quarter as a
consequence of expansion of the Company's workforce and, to a lesser degree,
increases in compensation to its continuing employees and (ii) an increase in
selling expenses of $35,408, or 55%, to $99,715 in the 1996 Quarter from $64,307
in the 1995 Quarter, primarily due to increased travel expenses related to
franchise sales efforts, visits to proposed retail locations and provision of
on-site store training and assistance.
 
     In the future, management anticipates that selling expenses will continue
to be directly related to the level of the Company's franchising activities.
 
     Depreciation and amortization decreased by $4,082, or 6%, to $67,397 in the
1996 Quarter from $71,479 in the 1995 Quarter, primarily as a consequence of the
fact that the Company owned and operated one fewer store during the 1996 Quarter
than during the 1995 Quarter.
 
     Interest expense decreased by $8,138, or 45%, to $9,863 in the 1996 Quarter
from $18,001 in the 1995 Quarter as a consequence of a reduction in the
Company's outstanding debt between those two periods.
 
   
     The net loss for the 1996 Quarter was $367,249, which represented an
increase of 8%, as compared to the net loss of $341,300 for the 1995 Quarter. To
date, the Company has operated at a loss as a result of the application of
resources in excess of revenues to develop its operating infrastructure in
anticipation of additional franchise sales, Company-store growth and commissary
sales. Consequently, total revenues are not yet sufficient to support the
Company's overhead. Management anticipates that, during the fiscal year ending
    
 
                                       17
<PAGE>   21
 
   
October 31, 1996, the Company's revenues will increase due to additional
franchise sales, increased royalty income from existing, as well as new,
franchises, increased commissary revenues generated by sales to franchise
stores, increased sales in existing Company-owned stores and sales revenues from
newly opened, Company-owned stores. There can be no assurance, however as to
whether, and to what extent, the Company will actually experience additional
revenues from any of these sources. The Company's ability to operate profitably
in the future is substantially dependent upon its ability to sell store and area
development franchises and to open additional franchise stores. See "Risk
Factors -- Limited Operating History; Operating Losses," "-- Expansion,"
"-- Dependence on Franchisees" and "Business -- Plan of Operations."
    
 
RESULTS OF OPERATIONS -- SIX-MONTH PERIODS ENDED APRIL 30, 1996 AND 1995
 
   
     Sales revenues for the six months ended April 30, 1996 (the "1996 Half")
were $1,138,955, a decrease of $195,772, or 15%, from $1,334,727 for the six
months ended April 30, 1995 (the "1995 Half"). This decrease is attributable to
(i) a decrease in store sales of $398,929, or 38%, to $646,317 in the 1996 Half
from $1,045,246 in the 1995 Half, as a result of a reduction from five to three
stores operated by the Company during the first three months and from five to
four stores operated by the Company during last three months of the 1996 Half,
and (ii) a decrease in equipment sales of $84,834, or 33%, to $172,180 in the
1996 Half from $257,014 in the 1995 Half, primarily due to the fact that, during
1996, the Company has focused on franchising activities rather than on sales of
equipment to unaffiliated purchasers, which decreases were substantially offset
by (i) the commencement of franchising activities during 1996, which resulted in
franchising revenues of $195,639 during the 1996 Half, consisting of initial,
non-recurring franchise and market development fees of $22,500 and $153,700,
respectively, and $19,439 of ongoing royalties and (ii) an increase in
commissary sales of $92,352, or 284%, to $124,819 during the 1996 Half from
$32,467 in the 1995 Half, as a consequence of a greater number of franchise
stores and a concomitant increase in demand for product during the 1996 Half.
    
 
     Management anticipates that future equipment and commissary sales will be
dependent upon the Company's franchising activities rather than on sales to
unaffiliated purchases and that such sales will increase or decrease in direct
proportion to the Company's success in expanding its system of franchise stores.
 
   
     Cost of sales decreased by $412,639, or 36%, to $735,268 in the 1996 Half
from $1,147,907 in the 1995 Half. This decrease is primarily due to decreased
store and equipment sales. Cost of sales as a percentage of product sales
decreased to 79% in the 1996 Half from 86% in the 1995 Half, reflecting the net
effect of a decrease in equipment sales and an increase attributable to the
upgrading of the Company's Lodi, New Jersey commissary and production facility
and increases in payroll and fixed overhead costs associated with expansion of
this facility. To the extent that future increases in the Company's total
revenues are attributable to franchise fees, market development fees and
franchise royalties, cost of sales can be expected to decrease as a percentage
of revenues.
    
 
   
     Selling, general and administrative expenses increased by $165,207, or 23%,
to $893,430 in the 1996 Half from $728,223 in the 1995 Half. This increase is
primarily due to (i) an increase in salaries and related costs of $130,644, or
62%, to $341,010 in the 1996 Half from $210,346 in the 1995 Half and (ii) an
increase in selling expenses of $38,084, or 27%, to $181,404 in the 1996 Half
from $143,320 in the 1995 Half, primarily due to increased travel expenses
related to franchise sales efforts, visits to proposed retail locations and
provision of on-site store training and assistance.
    
 
     Depreciation and amortization decreased by $28,104, or 18%, to $126,592 in
the 1996 Half from $154,696 in the 1995 Half, primarily as a consequence of the
fact that the Company owned and operated two fewer stores during first three
months and one fewer store during the last three months of the 1996 Half than
during the comparable periods of 1995 Half.
 
     Interest expense decreased by $23,938, or 51%, to $23,051 in the 1996 Half
from $46,989 in the 1995 Half as a consequence of a reduction in the Company's
outstanding debt between those two periods.
 
   
     The net loss for the 1996 Half was $752,954, which represented a decrease
of 12%, as compared to the net loss of $856,656 for the 1995 Half. To date, the
Company has operated at a loss as a result of the application of resources in
excess of revenues to develop its operating infrastructure in anticipation of
additional franchise sales, Company-store growth and commissary sales.
Consequently, total revenues are not yet sufficient to support the Company's
overhead. Management anticipates that, during the fiscal year ending October 31,
1996, the Company's revenues will increase due to additional franchise sales,
increased royalty income from
    
 
                                       18
<PAGE>   22
 
   
existing, as well as new, franchises, increased commissary revenues generated by
sales to franchise stores, increased sales in existing Company-owned stores and
sales revenues from newly opened, Company-owned stores. There can be no
assurance, however as to whether, and to what extent, the Company will actually
experience additional revenues from any of these sources. The Company's ability
to operate profitably in the future is substantially dependent upon its ability
to sell store and area development franchises and to open additional franchise
stores. See "Risk Factors -- Limited Operating History; Operating Losses,"
"-- Expansion," "-- Dependence on Franchisees" and "Business -- Plan of
Operations."
    
 
RESULTS OF OPERATIONS -- 12-MONTH PERIODS ENDING JANUARY 1996 AND 1995
 
   
     Sales revenues for Fiscal 1996 were $2,843,692, an increase of $860,714, or
43%, from revenues of $1,982,978 for Fiscal 1995. This increase is primarily
attributable to the commencement of franchising activities during Fiscal 1996,
resulting in revenues of $407,150 in that year (consisting of initial,
non-recurring market development and single unit franchise fees of $117,824 and
$30,000, respectively; initial, non-recurring revenues from the sale of Company
stores to franchisees in the amount of $247,777; and ongoing royalties of
$11,549), and to an increase of $708,362, or 60% ($1,887,000 in Fiscal 1996 from
$1,178,638 in Fiscal 1995) as a consequence of having a full year of retail and
wholesale operations under the Company's ownership in Fiscal 1996, as compared
to only four months of operations under the Company's ownership subsequent to
the acquisition of the Sammy's stores on September 29, 1994 in Fiscal 1995.
These increases were partially offset by a decrease in revenues from equipment
sales to $549,542 in Fiscal 1996 from $804,340 in Fiscal 1995. This decrease of
$254,798, or 32%, is attributable primarily to the fact that, during Fiscal
1996, the Company focused on franchising activities rather than on sales of
equipment to unaffiliated purchasers. During Fiscal 1996, the Company entered
into 11 single-store franchise agreements and three multi-unit Market
Development Agreements, representing commitments to build an aggregate of 28
stores over a period of 60 months. See "Business -- Franchising."
    
 
     Cost of sales increased by $677,702, or 42%, to $2,280,240 in Fiscal 1996
(including $213,408 attributable to cost of sales in connection with franchising
activities) from $1,602,538 in Fiscal 1995. This increase is primarily due to
increased product sales. In addition, cost of sales as a percentage of product
sales increased to 85% in Fiscal 1996 from 81% in Fiscal 1995 as a consequence
of (i) the write down of certain equipment inventory below cost in the amount of
$107,000 to reflect current market value and (ii) the upgrading of the Company's
Lodi, New Jersey commissary and production facility and increases in payroll and
fixed overhead costs associated with expansion of this facility.
 
   
     Selling, general and administrative expenses increased by $467,723, or 43%,
to $1,568,642 in Fiscal 1996 from $1,100,919 in Fiscal 1995. This increase is
primarily due to (i) an increase in salaries and related costs of $226,513, or
73%, to $536,500 in Fiscal 1996 from $309,987 in Fiscal 1995 as a consequence of
expansion of the Company's workforce during Fiscal 1996 and, to a lesser degree,
increases in compensation to its continuing employees; (ii) an increase in
occupancy costs of $133,806, or 90%, to $284,344 in Fiscal 1996 from $148,538 in
Fiscal 1995, due to the rental of new and larger administrative offices and
additional storage space, and the payment of a full year of rent for the
Company-owned stores and Lodi, New Jersey commissary for Fiscal 1996; and (iii)
an increase in selling expenses of $36,218, or 12%, to $347,390 in Fiscal 1996
from $311,172 in 1995, primarily due to increased travel expenses related to
franchise sales efforts, visits to proposed retail locations and provision of
on-site store training and assistance.
    
 
     Depreciation and amortization increased by $73,331, or 37%, to $270,658 in
Fiscal 1996 from $197,347 in Fiscal 1995 and deferred acquisition costs
increased by $152,880, or 206%, in Fiscal 1996 as compared to $74,256 in Fiscal
1995. Both of these increases are directly attributable to the fact that the
Company's operations for Fiscal 1996 included a full year of operations of
Sammy's, while in Fiscal 1995 the Company operated Sammy's for only four months.
 
   
     During Fiscal 1995, the Company recognized an impairment of certain
long-lived assets acquired in connection with the acquisition of the Goldberg
Companies in September 1993, resulting in a charge to operations of $676,038.
Also during Fiscal 1995, the Company recorded an extraordinary item in the
amount of $644,150, resulting from the early extinguishment of debt. This debt
originally was issued in connection with the acquisition of the Goldberg
Companies and was renegotiated during Fiscal 1995 as a consequence of the
impairment of certain assets acquired in that transaction. See
"Business -- History of the Company" and "-- Renegotiation of Certain
Acquisition Terms." The Company recorded no comparable impairment or early
extinguishment during Fiscal 1995.
    
 
                                       19
<PAGE>   23
 
   
     The net loss for Fiscal 1996 was $1,537,250, which represented an increase
of 45%, as compared to the net loss of $1,062,621 for Fiscal 1995. To date, the
Company has operated at a loss as a result of the application of resources in
excess of revenues to develop its operating infrastructure in anticipation of
additional franchise sales, Company-store growth and commissary sales.
Consequently, total revenues are not yet sufficient to support the Company's
overhead. Management anticipates that, during the fiscal year ending October 31,
1996, the Company's revenues will increase due to additional franchise sales,
increased royalty income from existing, as well as new, franchises, increased
commissary revenues generated by sales to franchise stores, increased sales in
existing Company-owned stores and sales revenues from newly opened,
Company-owned stores. There can be no assurance, however as to whether, and to
what extent, the Company will actually experience additional revenues from any
of these sources. The Company's ability to operate profitably in the future is
substantially dependent upon its ability to sell store and area development
franchises and to open additional franchise stores. See "Risk Factors -- Limited
Operating History; Operating Losses," "-- Expansion," "-- Dependence on
Franchisees" and "Business -- Plan of Operations."
    
 
     In addition, management anticipates that the costs and expenses of
operating the Company and its business will increase with the expansion of the
business. While management anticipates that most of such costs will increase in
proportion to increased sales and other business activity and, in some instances
may decline as a consequence of the Company's ability to avail itself of volume
discounts for both products and services, certain expenses may be expected to
increase more than proportionately. In particular, members of senior management
historically have been compensated at levels that the Company deems appropriate
for a development stage enterprise, but that management believes are
substantially below compensation levels in operating companies in the Company's
business. See "Management -- Executive Compensation." As the Company grows, it
is anticipated that executive compensation will be increased to levels
competitive with those of senior executives in operating companies comparable in
size to the Company.
 
LIQUIDITY AND CAPITAL RESOURCES
 
   
     The Company requires significant capital to fund its working capital needs
and its planned expansion. Revenues are not yet sufficient to support the
Company's operating expenses and are not expected to reach such levels during
the next year. Cash used by operating activities for the 1996 Half was $844,940.
Cash and cash equivalents at April 30, 1996 aggregated $896,132 and the Company
had working capital of $181,282.
    
 
   
     The aggregate amount of accounts payable and accrued expenses was $852,366
at April 30, 1996. It is the Company's policy to pay its vendors within 30 days
(unless alternative payment terms are available on advantageous terms). The
Company has been able to purchase inventory as required.
    
 
     Since its formation in 1993, the Company has funded its operations and
capital expenditures primarily through capital contributions from its founders
and private placements of its equity securities and by utilizing vendor credit.
 
     In April 1996, the Company completed private placements of its Common Stock
(the "Private Placements") pursuant to which it received proceeds of $2,413,986,
net of expenses of $48,514. Of the net proceeds, $410,000 consisted of property
in the form of two unopened retail bagel stores in the final stages of
construction. The proceeds from the Private Placements to date have been used to
fund (i) the Company's operations; (ii) the voluntary redemption of shares of
the Company's Preferred Stock; (iii) a reduction in trade payables; and (iv) the
acquisition of capital assets. The Company intends to apply the remainder of
these proceeds for working capital purposes.
 
   
     The Company intends to apply the net proceeds from this Offering, estimated
to be $2,940,000 ($3,399,000 if the Underwriter's over-allotment option is
exercised in full) to redeem Preferred Stock ($325,000), open additional
Company-owned flagship stores ($400,000), expand or relocate its commissary
($350,000), expand the Company's equipment inventory ($250,000), relocate its
headquarters ($150,000), expand its marketing and promotional activities
($100,000) and for working capital and general corporate purposes ($1,365,000).
See "Use of Proceeds."
    
 
                                       20
<PAGE>   24
 
                                    BUSINESS
 
OVERVIEW
 
     All American Food Group, Inc. (together with its wholly owned subsidiaries,
the "Company") franchises two distinct bagel store concepts, distributes bagel
bakery equipment and currently operates four retail bagel stores. All of the
Company's bagels are prepared using the Company's proprietary bagel mix and
dough conditioner, in the "Old World" style, by first boiling and then baking
the dough using the Company's own bagel kettle and bagel oven. The Company
believes that this process and the use of its proprietary ingredients and its
equipment ensure the consistent preparation of premium quality bagels with a
shine, crust, texture and overall flavor that distinguish its products from
those of its competitors.
 
     The Company franchises its concepts and operates its bagel stores under the
names "Goldberg's Original Old World Bagels" ("Goldberg's") and "Sammy's New
York Bagels" ("Sammy's"). Stores franchised under the Goldberg's name and
concept offer a traditional bagel/delicatessen menu, consisting of bagels,
spreads, sandwiches, salads, soups and "appetizing" bakery items. Sammy's stores
differ from Goldberg's stores in that they offer bagels and related dairy items
in a kosher store, under national Kof-K Kosher Supervision. Management believes
that Sammy's is the only franchised food chain subject to national kosher
certification currently available in the United States.
 
   
     As of July 31, 1996, the Company's retail system consisted of six
Goldberg's and six Sammy's stores located in four states, including two
Goldberg's stores and two Sammy's stores owned and operated by the Company and
four Goldberg's and five Sammy's stores operated under franchise or license
arrangements with the Company. As of July 31, 1996, two additional Goldberg's
and two additional Sammy's stores to be operated under franchise or license
arrangements with the Company, and one Company-owned Goldberg's store, were
under development and expected to open by October 31, 1996.
    
 
   
     The Company also distributes and services its bagel bakery equipment for
use by its franchisees and by unaffiliated purchasers. During the years 1990
through 1995, the Company or its predecessor provided equipment and other
services to over 100 separate stores. The Company specializes in providing
equipment and services to restaurants and bakeries utilizing the "Old World"
method of boiling then baking bagels utilizing revolving tray ovens. Management
believes that the Company is the only franchiser of bagel stores that provides
its equipment to its franchisees.
    
 
     The Company intends to expand its retail operations primarily through
franchising. Management believes that food service franchising in general, and
the franchising of bagel restaurants in particular, present a unique opportunity
for success in the current consumer and franchise markets. See "-- The Bagel
Business."
 
PLAN OF OPERATIONS
 
     The Company anticipates increasing its revenue, thereby generating
operating cash flow in the future, by implementing the following actions:
 
   
          - Expanding franchise operations.  The Company expects to increase the
     sale of franchises by (i) advertising in national and regional publications
     and business magazines and (ii) upgrading its promotional material. In
     addition, depending upon the availability and utilization of existing
     personnel, the Company may hire additional sales personnel. The Company
     also expects to increase its sale of franchises by opening additional
     Company-owned flagship stores to generate interest from experienced
     multi-store developers to enter into multi-unit Market Development
     Agreements. Management anticipates that the sale of additional franchise
     territories and the opening of additional stores in such territories should
     result in increases in franchise revenues.
    
 
          - Increasing product sales.  The Company intends to open new
     Company-owned retail stores and expects increased sales from its commissary
     to new franchise stores. The Company continuously develops new products,
     which management believes will lead to increased sales as the variety of
     products grows. The Company has retained an advertising firm to help
     increase store revenues, increase franchise sales and promote brand name
     recognition. See "-- Advertising."
 
                                       21
<PAGE>   25
 
          - Making acquisitions.  The Company intends to acquire other bagel
     stores or complementary outlets which provide entry into new markets.
     Management anticipates that, over a period of time, these acquisitions will
     increase revenues significantly. However, the Company currently has no
     plans, intentions, commitments, understandings or arrangements with respect
     to any such acquisitions.
 
HISTORY OF THE COMPANY
 
     The Company was formed for the purpose of establishing a chain of
franchised bagel restaurants using the recipes, procedures, experience and
expertise of an existing, well-seasoned bagel restaurant and bakery operation.
In October 1993, the Company acquired all the assets of Howberg Bakery Equipment
Co., Inc. (the "Equipment Company"), Bagels of New Milford, Inc. and Goldberg's
Famous Bagels of Orangeburg, Inc. (together, the "Goldberg Companies"), each a
retail and wholesale bagel and related foodstuff company. (The Goldberg family
continues to operate ten bagel stores that are not affiliated with the Company
and, subject to certain noncompetition covenants, may open additional stores in
the future.) See "-- Renegotiation of Certain Acquisition Terms."
 
     The assets of the Goldberg Companies consisted of two bagel stores operated
by the Goldberg family of Westwood, New Jersey (one of which subsequently was
sold), including the exclusive franchise rights to the recipes, flour, mixes and
proprietary equipment used in these stores. The Goldberg family has been
operating retail bagel shops for over 50 years under variations of the Goldberg
name.
 
     The Equipment Company was engaged in the manufacture, assembly, sale and
service of equipment used in the production of bagels. In connection with the
sale of equipment, the Equipment Company also provided consulting services in
the area of store design, equipment layout, training, food preparation and
virtually all other aspects of the retail food business. The Company currently
operates the business of the Equipment Company under the name "All American
Equipment Company."
 
     On September 29, 1994, the Company completed the acquisition of 100% of the
outstanding stock of four interrelated corporations operating three retail
stores (one of which subsequently was sold) and a commissary under the trade
name "Sammy's New York Bagels."
 
     Since its acquisition of the Goldberg's and Sammy's stores, the Company has
engaged in an extensive process of analyzing, standardizing and documenting all
aspects of its retail bagel operations, preparing franchise materials and
developing its franchise system and program. In addition, it retrofitted one of
the Goldberg's locations to serve as a prototype store for purposes of marketing
franchises and training personnel.
 
     The Company was incorporated as a subsidiary of Jutland Enterprises Inc.
under the laws of the State of New Jersey on September 27, 1993, under the name
"Jutland Food Group, Inc." and changed its name to "All American Food Group,
Inc." on October 24, 1995.
 
   
     Shortly after the Company's incorporation in 1993, Jutland Enterprises
Inc., a Delaware corporation ("Enterprises"), acquired 937,500 shares of the
Company's Common Stock for consideration consisting of $300,000 in cash and
$277,000 in assets. At the same time, Andrew Thorburn, then Chairman, President,
Chief Executive Officer of both Enterprises and the Company, and a principal
owner of Enterprises, acquired an additional 312,500 shares of the Company's
Common Stock in exchange for 400,000 shares of Enterprises Common Stock.
Enterprises subsequently distributed to its stockholders the shares of the
Company's Common Stock issued to it in 1993 and no longer is a shareholder of
the Company.
    
 
   
     The Company's executive offices are located at 9 Law Drive, Fairfield, New
Jersey 07006 and its telephone numbers are (201) 244-9336 or (800) 922-4350.
    
 
THE BAGEL BUSINESS
 
   
     Management believes that food service franchising in general, and the
franchising of bagel restaurants in particular, present a unique opportunity for
success in the current consumer and franchise markets. According to industry and
government statistics, U.S. per capita bagel consumption currently is growing at
the rate of 8% annually and U.S. per capita consumption (currently an average of
eight bagels per person annually) rose 45%
    
 
                                       22
<PAGE>   26
 
   
over the last five years. Management believes that this historical growth rate
has been sustained, if not increased, since 1993. Management also believes that
this increased demand for bagels arises primarily from increased consumer demand
for healthier, low-fat food products and that the versatility, convenience and
relatively low price of bagels add to their appeal. In keeping with this growing
consumer demand, bagel shops were selected by Entrepreneur magazine as among the
"hottest new franchises" for both 1995 and 1996.
    
 
     Inasmuch as most flavors of bagels have no fat or cholesterol, they
represent an attractive alternative to doughnuts, pastries and other breakfast
baked goods, while at the same time offering substantially more versatility and
variety than more traditional bread products. Further, because bagels can be
used in sandwiches, bagel restaurants can be expected to attract customers
throughout the day. Management believes that lunch time business accounts for
approximately 40% of a typical bagel store's daily business. And, since
customers frequently desire to purchase bagels for home consumption, bagel
restaurants also can rely upon take-out trade for a significant portion of their
revenues.
 
     While bagels historically have been a staple ethnic food along the East
Coast and in certain other urban areas throughout the country, management
believes that there is a substantial potential market in smaller urban and
suburban areas. Further, until recently the retail bagel industry has been
composed almost exclusively of one and two-store operations and a few larger
regional chains, some of which have indicated the intention to expand to a
national scope. Management believes that there is a significant market for high
quality bagels and that there is a significant market niche for companies able
to provide such bagels on a consistent basis through a nationwide system of
retail outlets. The Company believes that its system of producing bagels in each
store using proprietary ingredients and its equipment is the optimal method for
delivering fresh, consistently high quality products to a large and
geographically dispersed market.
 
COMPETITIVE STRENGTHS
 
     Management believes that the Company has a unique combination of
characteristics that will help it to successfully build a nationwide chain of
franchised bagel restaurants under both of its concepts. The Company's key
competitive strengths include the following:
 
          Quality Products.  Management believes that the key to the Company's
     success lies with the quality of its products. Therefore, all of the
     Company's bagels are prepared, in the "Old World" style, using the
     Company's proprietary bagel mix and dough conditioner, by first boiling and
     then baking the dough using the Company's bagel kettle and bagel oven. The
     Company believes that this process and the use of its proprietary
     ingredients and its equipment results in premium quality bagels with a
     shine, crust, texture and overall flavor that distinguish its products from
     those of its competitors. Bagels sold in Goldberg's restaurants are
     produced on-site, in order to provide continuous availability of oven-fresh
     products. In order to ensure full compliance with the requirements for
     kosher certification, the Company produces pre-formed, uncooked bagels for
     its Sammy's stores at its central commissary in Lodi, New Jersey and ships
     such bagels frozen to the stores on a weekly basis for on-site preparation.
     See "-- Kosher Certification and Supervision."
 
          Experience.  The Company's products and operating systems were
     developed based on the experience of the Goldberg family of Westwood, New
     Jersey during the 58 years of operation of its family-owned bagel shops.
     Based on this half century of experience and management's experience in
     operating and franchising other food concepts, the Company has analyzed,
     standardized and documented all aspects of its retail bagel operations to
     develop its operating and franchise systems. See "-- Franchising" and
     "Management."
 
          Complementary Concepts.  Management believes that the Company's
     franchise program is unique in offering two complementary bagel
     concepts -- Goldberg's, which offers a traditional bagel/ delicatessen
     menu, and Sammy's, which offers bagels and related dairy items in a kosher
     store. Management believes that the availability of these two complementary
     concepts uniquely positions the Company to benefit from economies of scale
     in purchasing, while permitting it to penetrate distinct segments of the
     bagel market.
 
                                       23
<PAGE>   27
 
          Kosher Concept and Production Facilities.  Management believes that
     Sammy's is the only franchised food chain subject to national kosher
     certification currently available in the United States. Kof-K Kosher
     Supervision estimates that the kosher market currently generates over $2
     billion in sales annually from 20,000 certified kosher products. With over
     6 million Jews nationally, another 6 million Muslims and Seventh Day
     Adventists subject to similar dietary restrictions, and a significant
     segment of the secular market that views kosher certification as a sign of
     high quality, authenticity and careful preparation, this market has
     experienced average annual sales growth of 20% or more since 1990. In order
     to ensure consistency in the quality of its products and achieve economies
     in kosher supervision, the Company operates a central commissary from which
     all Sammy's stores receive frozen pre-formed, uncooked bagels on a weekly
     basis for on-premises preparation. Management anticipates that, in the
     future, it will utilize this facility for the production of bagels for sale
     to Goldberg's as well as Sammy's franchisees. See "-- Properties."
 
          Equipment Business.  Management believes that the Company is unique in
     designing and distributing its bagel bakery proprietary equipment and in
     its ability to provide consulting services in all areas of the retail bagel
     business, including store design, equipment layout, training and food
     preparation. Management also believes that these unique capabilities
     provide the Company with a distinct advantage in equipping and advising its
     franchised outlets and in ensuring the quality of its products. In
     addition, since the Company continues to provide equipment to unaffiliated
     bagel shops and bakeries, equipment sales represent an additional source of
     revenue to the Company. Management believes that equipment sales will
     benefit from continued demand for bagels nationwide. See "-- Plan of
     Operations" and "-- The Bagel Business."
 
MENUS AND FORMAT
 
     The Company's aim is to provide consumers with superior products,
consisting primarily of fresh bagels, spreads, salads and complementary items,
and superior service in a pleasant and attractive environment. All of the
Company's bagels are prepared using the Company's proprietary bagel mix and
dough conditioner, in the "Old World" style, by first boiling and then baking
the dough, using the Company's bagel kettle and bagel oven. The Company believes
that this process and the use of its proprietary ingredients and its equipment
ensures the consistent preparation of premium quality bagels with a shine,
crust, texture and overall flavor that distinguish its products from those of
its competitors.
 
     Goldberg's offers a traditional bagel/delicatessen menu, consisting of a
variety of flavors of bagels, spreads, sandwiches (served on freshly baked
bagels), salads, soups and "appetizing" bakery items. Sammy's offers bagels and
related dairy items in a kosher store, under National Kof-K Kosher Supervision.
Goldberg's bagels are prepared on-site "from scratch" and Sammy's bagels are
prepared from frozen pre-formed dough delivered to the stores weekly and baked
on the premises, in each case providing a continuous supply of fresh product and
permitting customers to enjoy the aroma of freshly baked bagels. Both concepts
also offer an array of hot and cold beverages including coffee, tea, juices and
soft drinks. Depending upon local competitive and other conditions, Goldberg's
and Sammy's stores generally are open between the hours of 6 a.m. and 6 p.m.
seven days a week.
 
   
     The Company's restaurants typically are located in strip-style neighborhood
and community shopping centers or other high-traffic areas and consist of an
overall area of between 750 and 2,000 square feet, including a dining area
providing seating for between eight and 30 customers, a take-out counter, and
kitchen, food preparation and storage areas. Decor is intended to evoke a 1938
bagel shop, and includes an original photo montage of New York City scenes from
that era, additional vintage photographs and memorabilia, wainscoting and a tin
ceiling.
    
 
KOSHER CERTIFICATION AND SUPERVISION
 
     All of the Sammy's stores have earned certification from the
internationally recognized Kof-K Kosher Supervision ("Kof-K"), ensuring that
they operate in strict compliance with Kashruth, the Orthodox Jewish laws
pertaining to the content and preparation of kosher foods and related matters.
 
                                       24
<PAGE>   28
 
     Kof-K, headquartered in Teaneck, New Jersey, is one of two universally
recognized and accepted organizations responsible for certifying kosher products
and establishments. Founded almost 30 years ago, Kof-K employs more than 150
experts in Kashruth and food service, as well as an international network of
regional and local coordinators and Rabbinical representatives.
 
     Prior to certifying an establishment as meeting Kashruth requirements,
Kof-K supervises and inspects the cleaning of the proposed site and obtains a
complete list of all products and ingredients to be used, as well as all food
handling and preparation procedures to be followed. Once Kof-K has established
that each relevant item complies with the requirements of Kashruth, it issues an
initial certification for the store. Throughout preopening preparations, Kof-K
works with the local religious community to enlist support for the new store and
to provide assurance that it will meet the Kashruth requirements. After opening,
Kof-K representatives inspect the store on a regular basis to ensure continued
compliance with Kashruth standards.
 
     Management believes that the kosher status of the Sammy's stores places
them in a unique niche as the only franchised food chain subject to national
kosher certification currently available in the United States.
 
FRANCHISING
 
     Neither the following discussion, nor the other information contained in
this Prospectus, constitutes, and neither shall be construed as, an offer to
sell a Goldberg's or Sammy's franchise. Such offers may be made only by an
Offering Circular in compliance with applicable state law and the Federal Trade
Commission Disclosure Rule. The description of the franchises set forth in this
Prospectus is not intended to be a complete description of a Goldberg's or
Sammy's franchise business.
 
   
     The Company offers single-unit franchises, as well as Market Development
Agreements covering a number of stores to be opened in a designated area within
a specified period of time. The Company currently may sell its franchises in 29
states and expects to receive authorization to sell in an additional 21 states
by October 31, 1996. The Company has entered into a Market Development Agreement
for the State of Ohio, covering 15 retail stores, a Market Development Agreement
for the State of Arizona, covering 15 retail stores, a Market Development
Agreement covering a portion of the State of New York covering 37 retail stores
and a licensing agreement covering the country of Israel.
    
 
   
     Franchise revenue includes the sale of single unit franchises pursuant to
Single Unit Agreements, the sale of Company-owned stores to franchisees, the
sale of market development franchises pursuant to Market Development Agreements
and ongoing royalty and advertising fees.
    
 
   
     Single Unit Agreements provide for payment of a nonrefundable initial
franchising fee (an "Initial Franchise Fee"), a weekly royalty on gross sales,
and a weekly cooperative advertising fund contribution. The Company's material
obligations under the terms of all Single Unit Agreements are assisting in site
selection and franchisee training. Initial Franchise Fees under Single Unit
Agreements are recognized as revenues when the Company has no further material
obligations in respect of the establishment of such franchise, which occurs upon
the opening of the store.
    
 
   
     Market Development Agreements provide for the payment, by the Market
Developer, of a nonrefundable initial fee (a "Market Development Fee") based on
the size, population and overall market potential of the territory subject to
the Market Development Agreement (the "Market Area"). The Market Developer
assumes substantially all of the responsibilities that otherwise would be
assumed by the Company, as franchiser within the Market Area. In exchange, the
Market Developer receives (i) the exclusive right to build stores for the Market
Developer's own account or to seek third party franchisees within the Market
Area and (ii) the right to share with the Company, on a 50/50 basis, initial and
ongoing single store fees within the Market Area. The Market Development
Agreement includes a development schedule setting forth the number of stores to
be developed by the Market Developer during the term of the Agreement. If the
Market Developer fails to maintain the store development, the Market Developer
loses the exclusive right to develop the Market Area. Under Market Development
Agreements, the Company's obligations in respect of the development of single
unit franchises within the Market Area are limited to (i) approval of
franchisees presented by the Market Developer and (ii) approval of store sites.
The Company has no further material
    
 
                                       25
<PAGE>   29
 
   
obligations in respect of a Market Development Agreement at the time of
execution of the Agreement. Market Development Fees paid in cash or by
promissory notes fully collateralized by liquid assets or as to which the
Company has obtained an independent third-party valuation, are recognized as
revenues by the Company upon execution of the Market Development Agreement and
payment of the fee. In the absence of such collateral or valuation, the Company
recognizes Market Development Fees on a cash basis as payments on such notes are
received.
    
 
   
     The Company's portion of the Initial Franchise Fee on single unit
franchises sold within a Market Developer's Market Area is recognized as
revenues when the Company has no further material obligations in respect of the
establishment of such franchise, which occurs upon opening of the store.
    
 
     The Company seeks franchisees committed to the Company's high standards of
product quality and customer service. All franchised stores must operate in
strict compliance with the standards and procedures set out in the Company's
operations manuals. Each store must be under the management of a manager who has
completed the Company's training program, although franchisees are not required
to participate in the day-to-day management of their stores. The Company
conducts regular inspections (both scheduled and unannounced) to ensure that
franchises are operating in accordance with Company standards and procedures.
The Company provides support to its franchisees covering equipment and technical
issues 24 hours a day and seven days a week through a toll-free hotline.
 
     Exclusivity.  Each franchise agreement provides the franchisee with an
exclusive area, within which the Company is not permitted to sell another
franchise. Such exclusive areas, which are determined on a unit-by-unit basis
based on population density, traffic patterns and other relevant considerations,
generally range from a radius of four blocks in densely populated urban areas to
one mile or more in suburban locations.
 
   
     Market Development Agreements provide that, if the franchisee meets his
store opening schedule, the Company will not sell other franchises within the
developer's territory ("Market Area").
    
 
     Real Estate and Local Regulation.  Franchisees are obligated to purchase or
lease (for a term of at least ten years) the sites for their units. Franchisees
may designate a specific location or a locality in which they wish to operate,
subject to the exclusivity rights of other Goldberg's and Sammy's franchisees.
The Company provides assistance and guidance in site selection and lease
negotiation, and must approve all sites prior to lease execution. In addition,
the Company provides plans and specifications for a prototype store, as well as
assistance in obtaining financing, permits and licenses, and with construction
of leasehold improvements. Franchisees are expected to bear the expense of any
modification of the prototype plans and specifications required to meet local
building, fire or health codes and lease and other similar requirements, as well
as the costs of remodeling, fireproofing or other leasehold improvements.
Franchises also are responsible for, and expected to bear the expense of, local
licensing matters related to occupancy and operation of the business.
 
     Financing.  The Company does not offer direct or indirect financing in
connection with its franchises. Similarly, it does not guarantee the debt, lease
or other obligations of any franchisee. The Company will, however, render
assistance in arranging financing and negotiating leases.
 
     Training and Field Support.  Prior to opening, each franchisee (or an owner
thereof) and at least one manager of each franchised Goldberg's or Sammy's
restaurant must complete a 13-day training program including approximately 35
and 70 hours of classroom and on-the-job training, respectively, covering areas
essential to the management and operation of both a retail and wholesale bagel
business, including bagel preparation and production; store operating
procedures; accounting and cost control; employee matters; in-and out-of-store
marketing; ordering; catering; equipment maintenance; and sanitation matters.
All training is conducted by senior Company personnel at the Company's corporate
headquarters in Fairfield, New Jersey, or in nearby Company-owned stores. As of
the date of this Prospectus, the Company had not established a permanent
schedule for its training courses, but instead schedules such courses as needed
to meet the opening schedules of new stores. The Company does not charge for
this training and provides all participants with their midday meal, but
franchisees are expected to defray living expenses for themselves and their
employees during the training sessions. Similar training is required of all new
managers subsequently hired and is provided by the Company.
 
                                       26
<PAGE>   30
 
     Refresher and ongoing training is available to franchisees on an
individualized basis, through consultative meetings at franchise sites, at
corporate stores and at corporate headquarters.
 
     The Company provides on-site and other supervisory guidance and assistance
in connection with the opening of each Goldberg's and Sammy's store. Once open,
the Company conducts regular operational visits and provides ongoing guidance
and assistance based upon the results of such visits and review of reports
submitted to it. Such guidance and assistance may relate to standards, methods
and operating procedures; preparation of authorized food, beverages and other
products and services; selection, purchase and preparation of food, beverage and
other products, as well as fixtures, equipment, signs, materials and supplies;
formulation and implementation of advertising and promotional programs; and
establishment and operation of administrative, bookkeeping, accounting,
inventory control, sales and general operating procedures.
 
     The Company periodically distributes operational bulletins and newsletters
to its franchisees and provides ongoing assistance with technical and equipment
problems through its 24-hour hotline, as well as personal consultations either
at the franchise site or at the Company's executive offices.
 
     Pricing.  Prices are set by individual franchisees, pursuant to guidelines
provided by the Company, in light of local competitive and market conditions.
 
     Purchasing.  Franchisees are required to purchase bagel mix and/or dough
conditioner, in the case of Goldberg's stores, and prepared dough, in the case
of Sammy's stores, directly from the Company. In addition, all franchisees are
required to purchase the Company's bagel kettle and bagel oven. Management
believes that purchase of these items from the Company is essential to
maintaining the Company's quality control standards, and to ensuring the
consistent high quality of the bagels offered at all of its Goldberg's and
Sammy's stores.
 
     With respect to other items used in the operation of its stores, the
Company designates approved types and brands of products. In certain instances
the Company may designate a single supplier or a limited group of suppliers for
a product or brand of product, in order to increase the volume of purchases from
suppliers and permit the Company's franchisees as a whole to benefit from
discounts associated with quantity purchasing.
 
     In the event that a franchisee proposes to purchase any brand or type of
product not previously approved for purchase by the Company or to purchase
approved items from a supplier not previously approved, the franchisee is
required to submit to the Company information regarding the manufacturer's or
supplier's business reputation, delivery and service performance, reliability,
financial condition and credit worthiness. In addition, in the case of
previously unapproved products, the franchisee must submit samples for review by
the Company to determine compliance with the Company's specifications and
standards. The Company then reviews the submission and, within 30 days, makes a
determination whether or not to approve the supplier or product.
 
     The Company provides its franchisees with operational and accounting forms
for use in the operation of their stores. The Company also provides its
franchisees with promotional and advertising materials and other marketing
tools.
 
     Advertising.  Each franchisee is responsible for developing local
advertising and promotional materials, all of which are subject to prior review
and approval by the Company. In addition, the Company administers promotional
funds for the benefit of all of its Goldberg's and Sammy's franchisees.
Franchisees are obligated to contribute to the applicable fund a promotional fee
equal to 1% of gross sales. Franchisees also may be required to participate in
local or regional advertising cooperatives. Contributions to such cooperatives
will be at least 1% of gross sales, and will be controlled by the local
cooperative. See "-- Advertising." Stores owned and operated by the Company are
required to contribute to the promotional funds and to participate in
advertising cooperatives on the same basis as franchised stores.
 
     Franchise Fees and Royalty Payments.  Current franchise agreements provide
for an initial single unit payment of $25,000 for either a Goldberg's or a
Sammy's store. If a franchisee opens additional stores, either under a Market
Development Agreement or pursuant to additional single-unit franchise
arrangements, the initial payment is $17,500 per unit. In addition, franchisees
of both concepts pay a bi-weekly royalty and
 
                                       27
<PAGE>   31
 
service fee equal to 5% of gross sales. Franchisees also must contribute a
minimum of 1% of gross sales to a local or regional advertising cooperative.
 
     Start-Up Time and Costs.  Franchisees are required to enter into a lease
within 60 days of execution of a franchise agreement and to open within 120 days
following first possession of the leased premises. Subject to such factors as
the time to obtain a lease, financing or building permits, zoning and local
ordinances, weather conditions and availability of materials and equipment,
franchise stores generally can be expected to open within four to six months
following execution of a franchise agreement.
 
     While costs vary based on location and type of store, the Company currently
estimates that the cost to a new franchisee to open a typical Goldberg's or
Sammy's restaurant, including initial franchise fees, equipment, signs, opening
inventory and other start-up costs, but exclusive of real estate costs (purchase
price, lease payments and/or improvements) generally is in the range of $105,000
to $177,500 for either a Goldberg's or Sammy's store. In addition, the Company
estimates that rent for a typical Goldberg's or Sammy's store currently is
between $12,000 and $45,000 annually and that a new franchisee will incur
between $30,000 and $80,000 in real estate related expenses with respect to each
store.
 
     Term and Termination.  Each franchise agreement runs for an initial term of
ten years, subject to renewal for up to two additional five-year terms upon
agreement of the franchisee to refurbish and redecorate or secure new premises.
The Company has the right to terminate franchise agreements for a variety of
reasons, including failure to open a restaurant or complete training; loss or
surrender of restaurant premises; material misrepresentation; conviction of a
felony; failure to attend required training programs; unauthorized assignment of
a restaurant; unauthorized use of trademarks or confidential information;
failure to comply with Company specifications or procedures; failure to make
payments due to third parties; failure to make payments due to the Company or to
submit required reports; and sanitation problems.
 
STORE LOCATIONS
 
   
     The following table sets forth, by location, the number of Company owned,
franchised and licensed Goldberg's and Sammy's restaurants open or under
development, as of July 31, 1996:
    
 
                             COMPANY-OWNED STORES:
 
   
<TABLE>
<CAPTION>
                                                                                  DATE OPENED
                              LOCATION                                CONCEPT     (PROJECTED)
    -------------------------------------------------------------   -----------   -----------
    <S>                                                             <C>           <C>
    60 Dutch Hill Road, Orangeburg, NY...........................   Goldberg's        1/93
    1443 Queen Anne Road, Teaneck, NJ............................   Sammy's           3/93
    40 N. James Road, Columbus, OH...............................   Sammy's          11/94
    197 Bleecker Street, New York, NY............................   Goldberg's        2/96
    Rockland Plaza Space #25, Nanuet, NY.........................   Goldberg's       (8/96)
</TABLE>
    
 
                                       28
<PAGE>   32
 
                        FRANCHISED AND LICENSED STORES:
 
   
<TABLE>
<CAPTION>
                                                                                  DATE OPENED
                              LOCATION                                CONCEPT     (PROJECTED)
    -------------------------------------------------------------   -----------   -----------
    <S>                                                             <C>           <C>
    1033 East River Road, New Milford, NJ........................   Goldberg's         2/91
    134 North Avenue, New Rochelle, NY...........................   Sammy's            3/92
    4951 East Grant Road, Tucson, AZ.............................   Goldberg's         9/95
    Lane Avenue Shopping Center, Columbus, OH....................   Sammy's           12/95
    6449 Oracle Avenue, Tucson, AZ...............................   Goldberg's         1/96
    21A Wyckoff Avenue, Waldwick, NJ.............................   Goldberg's         6/96
    Columbus, OH.................................................   Sammy's            6/96
    1312 Grandview Avenue, Grandview, OH.........................   Sammy's            7/96
    1865 2nd Avenue, New York, NY................................   Goldberg's        (8/96)
    7111 East 22nd Street, Tucson, AZ............................   Goldberg's        (9/96)
    Dempster Street, Skokie, IL..................................   Sammy's           (9/96)
    White Plains, NY.............................................   Sammy's          (10/96)
</TABLE>
    
 
TRADEMARKS AND SERVICE MARKS
 
   
     The Company has filed registration applications to register the trademarks
"Goldberg's Original Old World Bagels" and "Goldberg's New York Bagels est.
1938" on the United States Patent and Trademark Office principal register. Those
applications currently are pending. Members of the Goldberg family currently
operate ten independent bagel bakeries using the name "Goldberg" in northern New
Jersey and Rockland County, New York, which are not affiliated with the Company.
    
 
     Management believes that, in the food service industry, trademarks and
service marks are most effectively protected by constant, continued and evolving
use of various distinctive identifying symbols. The Company is not dependent
upon particular registered marks and does not believe that the registration of
such marks would materially enhance its competitive position, business or
prospects.
 
     The Company provides bagel ovens and kettles and other bagel bakery
equipment to its franchisees and to unaffiliated purchasers and believes that
this equipment is uniquely suited to the production of high quality bagels.
Although the Company modifies and installs this equipment in a proprietary
manner, the Company does not believe these modifications and refinements are
patentable. It is the Company's practice to protect its proprietary dough
conditioner, bagel mix and bagel dough by relying on trade secret laws and
confidentiality agreements. There can be no assurance that the confidentiality
of its trade secrets will be maintained or that others will not independently
develop or obtain access to the same, comparable or improved recipes and
formulas. See "Risk Factors -- Lack of Trademark and Patent Protection."
 
COMPETITION
 
     The Company competes, and can be anticipated to compete, against well
established food service companies with greater product and name recognition and
with larger financial, marketing and distribution capabilities than the
Company's, as well as innumerable local food establishments that offer similar
products. The food service industry in general, and the take-out sector in
particular, are intensely competitive with respect to food quality, concept,
location, service and price.
 
     The bagel industry is highly fragmented and has traditionally been
dominated by "mom and pop" operators, which, management believes, creates a
unique growth opportunity for the Company's expansion. In addition, there is a
growing number of national, regional and local chains, operating both owned and
franchised bagel stores, including a number of such chains that have indicated
the intention to expand to a national scope. The Company believes that its most
direct competitors are Manhattan Bagel Company, Inc. ("Manhattan"), Einstein
Brothers Bagel, Inc. ("Einstein Brothers"), Bruegger's Corporation
("Bruegger's") and Chesapeake Bagels ("Chesapeake"). Management believes that
Manhattan's retail system currently consists of approximately 160 company owned,
franchised and licensed stores in 15 states; Einstein Brothers' retail system
consists of over 100 company owned and franchised stores in 14 states;
Bruegger's owns and
 
                                       29
<PAGE>   33
 
operates 40 retail bagel bakeries with an additional 235 franchised bakeries,
and Chesapeake has approximately 119 owned units in operation.
 
     Recently, the bagel industry has witnessed both rapid expansion and entry
from large companies not traditionally in the bagel industry. Boston Chicken,
Inc. provided a convertible loan to Einstein Brothers, which under certain
conditions can be converted into a majority equity interest in Einstein
Brothers. Further, Einstein Brothers recently acquired Noah's New York Bagels, a
West Coast chain consisting of approximately 40 stores, and announced plans for
a public offering. Quality Dining Inc. also recently announced its plan to
acquire Bruegger's and BAB Holdings Inc. of Chicago, which owns the Big Apple
Bagels chain ("Big Apple"), recently agreed to acquire Chesapeake.
 
     There are also several regional bagel chains with well under 100 units, all
of which may be expected to compete with the Company, including Big Apple, Big
City Bagel and Bon Jour Bagel Cafe. The Company's stores also compete with
take-out and fast-food restaurants, delicatessens and prepared food stores,
bakeries, supermarkets and convenience stores. The Company believes that the
start-up costs associated with opening a retail food establishment offering
similar products on a stand-alone basis are competitive with the start-up costs
associated with commencing a Goldberg's or Sammy's store and accordingly, such
start-up costs are not an impediment to entry into the retail bagel business.
See "Risk Factors -- Competition; Ease of Entry into Business."
 
     As a franchiser, the Company competes for qualified franchisees with a wide
variety of other investment opportunities both within and outside of the food
service industry. Management believes that the consistent quality of its
products, the efficiency of its operating systems, its proprietary ingredients,
its equipment and its franchisee support arrangements will permit it to compete
effectively, particularly against other franchisers of bagel stores.
 
ADVERTISING
 
     The Company presently advertises and plans to continue advertising, its
franchises in current stores, franchise trade shows, newspapers and business
opportunity magazines. The Company and its franchisees also advertise products
in newspapers, through direct mailing and on radio and television. See
"-- Franchising."
 
     The Company administers promotional funds ("Promotional Funds") to support
promotion and marketing programs designed to expand awareness of and demand for
Goldberg's and Sammy's products. Each Promotional Fund furnishes Goldberg's or
Sammy's franchisees, as the case may be, with promotional, advertising and
marketing materials, which may include such items as direct mail pieces, media
materials and brochures. The Company retains sole discretion over creative
concepts, materials and endorsements used in the Promotional Funds' programs and
over associated geographic, market and media placement and allocation. The
Promotional Funds may pay the cost of preparing materials, employing advertising
agencies and administering regional and local promotional and advertising
programs and public relations activities.
 
     Franchisees are obligated to contribute to the appropriate Promotional Fund
a promotional fee equal to 1% of gross sales.
 
     In the future, franchisees also may be required to participate in local or
regional advertising cooperatives. The cooperatives are expected to be made up
of franchisees within a given Designated Market Area for the purpose of pooling
advertising funds in order to purchase advertising effectively and efficiently.
Each franchisee will be entitled to one vote within the cooperative for each
store owned, and advertising purchases will be determined by majority vote.
Contributions will be determined by the members of each cooperative, and will
range from a required minimum of 1% of gross sales. Stores owned and operated by
the Company are required to contribute to the promotional funds and to
participate in advertising cooperatives on the same basis as franchised stores
within the same Designated Market Areas.
 
     Each franchisee is responsible for developing local advertising and
promotional materials, all of which are subject to prior review and approval by
the Company.
 
                                       30
<PAGE>   34
 
RENEGOTIATION OF CERTAIN ACQUISITION TERMS
 
     Total consideration for the acquisition of the Goldberg Companies consisted
of cash, a two-year promissory note, stock, and a two-year consulting contract
with Howard Goldberg. In connection with this acquisition, the Company also
agreed to lease certain premises owned by Mr. Goldberg for use as its equipment
warehouse and executive offices, and Mr. Goldberg entered into a noncompetition
agreement with the Company for a term extending for two years after the
termination or expiration of his consulting agreement with the Company. See
"-- History of the Company."
 
     Subsequent to the acquisition of the Goldberg Companies by the Company,
various elements of the transaction were renegotiated by the parties. This
renegotiation reflected a number of intervening events, including Mr. Goldberg's
default under the mortgage on the property occupied by the Company pursuant to
the original acquisition agreement, various financial disputes between the
Company and Mr. Goldberg, Mr. Goldberg's desire to decrease his time commitment
to the Company, and the Company's desire to extend the term of Mr. Goldberg's
noncompetition agreement with the Company.
 
   
     An additional renegotiation of matters relating to the acquisition of the
Goldberg Companies or arising in connection therewith was concluded in October
1995. The terms of this reconciliation included the satisfaction of certain
alleged defaults by the Company to Mr. Goldberg, the satisfaction of certain
defaults by Mr. Goldberg under the mortgage on the property occupied by the
Company, the reconciliation and settlement of outstanding financial matters,
certain modifications of Mr. Goldberg's consulting Agreement and an extension of
Mr. Goldberg's noncompetition agreement with the Company to December 31, 1997.
    
 
   
     On August 12, 1996, the Company and Mr. Goldberg entered into certain
additional agreements, reflected in a Modification and Settlement Agreement,
addressing all matters relating to the acquisition of the Goldberg Companies or
arising in connection therewith. Among other things, pursuant to this
Modification and Settlement Agreement Mr. Goldberg has agreed to convert 65,000
shares of his Series A Preferred Stock to an equal number of shares of the
Company's Common Stock and to surrender for cancellation the remaining 115,000
shares of Series A Preferred Stock currently held by him no later than five
business days following the closing of the Offering and the Company has agreed
to pay to Mr. Goldberg the amount of $25,000 and to assign certain claims to and
provide indemnification for certain claims that may be made against Mr. Goldberg
and the Goldberg Companies. In addition, the parties have agreed to (i) a
restatement and extension to three years of Mr. Goldberg's noncompetition
agreement and a restatement of prior agreements relating to use of trade dress;
(ii) the grant of mutual releases; and (iii) the termination of the franchise
and consulting agreements currently in effect between the Company and Mr.
Goldberg.
    
 
GOVERNMENT REGULATION
 
     The Company and its franchisees are required to comply with federal, state,
and local government regulations applicable to consumer food service businesses
generally, including those relating to the preparation and sale of food, minimum
wage requirements, overtime, working and safety conditions, and citizenship
requirements, as well as regulations relating to zoning, construction, health,
business licensing and employment. The Company believes that it and its
franchisees are in material compliance with these provisions. Continued
compliance with this broad federal, state and local regulatory network is
essential and costly and the failure to comply with such regulations may have an
adverse effect on the Company and its franchisees. See "Risk
Factors -- Government Regulation."
 
     The Company's franchise operations are subject to regulation by the Federal
Trade Commission ("FTC") in compliance with the FTC's rule entitled "Disclosure
Requirements and Prohibitions Concerning Franchising and Business Opportunity
Ventures," which requires, among other things, that the Company prepare and
update periodically a comprehensive disclosure document, known as the Uniform
Franchise Offering Circular ("UFOC"), in connection with the sale and operation
of its franchises. In addition, some states require a franchiser to register its
franchise with the state before it may offer the franchise. The Company believes
that its UFOC, together with any applicable state versions or supplements,
complies with both the FTC guidelines and all applicable state laws regulating
franchising in those states in which it has offered franchises.
 
                                       31
<PAGE>   35
 
     In addition to the rules governing the offer and sale of franchises, the
Company is also subject to a number of state laws, as well as foreign laws (to
the extent it offers franchises outside of the United States), that regulate
substantive aspects of the franchiser-franchisee relationship, including, but
not limited to, those concerning termination and non-renewal. Currently, 18
states, the District of Columbia, Puerto Rico and the Virgin Islands, have
franchise termination and non-renewal laws. These laws govern the termination
and/or non-renewal of the franchise agreement and, by and large, require the
franchiser to have good cause, reasonable cause or just cause in order to
terminate the franchise agreement or not to renew the franchise agreement. In
addition, some of these laws provide for longer cure periods than currently
contemplated by the Company's franchise agreements.
 
     Each store will be subject to regulation by federal agencies and to
licensing and regulation by state and local health, sanitation, safety, fire and
other departments. Difficulties in obtaining or the failure to obtain required
licenses or approvals could delay or prevent the opening of a new store. The
Company believes that it is in substantial compliance with the applicable laws
and regulations governing its operations.
 
     While the Company intends to comply with all federal, state and foreign
laws and regulations, there can be no assurance that it will continue to meet
the requirements of such laws and regulations, which, in turn, could result in a
withdrawal of approval to franchise in one or more jurisdictions. Any such loss
of approval would have a material adverse effect upon the Company's ability to
successfully market its franchises. Violations of franchising laws and/or state
laws and regulations regulating substantive aspects of doing business in a
particular state could subject the Company and its affiliates to rescission
offers, monetary damages, penalties, imprisonment and/or injunctive proceedings.
The state laws and regulations concerning termination and non-renewal of
franchisees are not expected to have a material impact on the Company's
operations. In addition, under court decisions in certain states absolute
vicarious liability may be imposed upon franchisers based upon claims made
against franchisees. The Company currently does not carry insurance against such
claims although it intends to obtain coverage in the future. However, there can
be no assurance that the Company will be able to obtain such coverage or that
such coverage will be sufficient to cover claims against the Company. Further,
there can be no assurance that existing or future franchise regulations will not
have an adverse effect on the Company's ability to expand its franchise program.
 
PROPERTIES
 
     The Company's executive offices are located at 9 Law Drive, Fairfield, New
Jersey 07006. The Company first occupied this location on January 1, 1995. The
headquarters consist of approximately 3,425 square feet. The Company's lease on
its headquarters location commenced January 1, 1995 and expires on February 28,
2000. The lease provides a renewal option of one five-year term. The Company
also rents 3,800 square feet of industrial space in Lodi, New Jersey, for use as
a bagel producing commissary, and for the distribution and assembly of its
equipment. The commissary operates under kosher supervision and produces bagels
for all Company-owned and franchised Sammy's stores. See "-- Kosher
Certification and Supervision." The Company believes the commissary is adequate
to its production needs through the end of 1996, but thereafter will be
inadequate to fulfill such needs.
 
     The Company purchases bagel bakery equipment from outside vendors for
distribution to Company-owned and franchised stores either directly from the
manufacturer or in one consolidated shipment from the Company's Lodi warehouse.
The Lodi facility currently is operating at full capacity, and management
expects that additional space will be needed for the Company to continue to
effectively distribute equipment to its franchisees.
 
     The Company intends to consolidate its current executive offices,
commissary operations, and equipment warehousing, in one central facility as
soon as practicable after the completion of the Offering described herein. The
Company is now investigating several suitable sites in the central New Jersey
area, and expects to lease a facility of approximately 15,000 square feet, of
which 5,000 will be devoted to executive offices, 8,000 to the bagel commissary,
and 2,000 to the warehousing of bagel equipment. Such a facility is expected to
be adequate to the Company's needs for the foreseeable future. See "Use of
Proceeds."
 
                                       32
<PAGE>   36
 
     The following table sets forth the location, size and certain information
pertaining to the lease, on each of the Company's two Goldberg's stores, two
Sammy's stores and its commissary.
 
<TABLE>
<CAPTION>
                                                                              LEASE TERMS
                                                       AREA      --------------------------------------
               LOCATION                   CONCEPT    (SQ. FT.)   COMMENCEMENT   EXPIRATION    RENEWALS
- --------------------------------------- -----------  ---------   ------------   ----------   ----------
<S>                                     <C>          <C>         <C>            <C>          <C>
1443 Queen Anne Road, Teaneck, NJ...... Sammy's          750        8/01/91        7/31/03      None
60 Dutch Hill Road, Orangeburg, NY..... Goldberg's     1,400        6/01/92        5/31/97    One five
                                                                                             year term
40 N. James Road, Columbus, Ohio....... Sammy's        2,600       11/01/93       10/31/03      None
10 Dell Glen Avenue, Lodi, NJ.......... Commissary     3,800       10/01/93       04/30/98    One five
                                                                                             year term
197 Bleecker Street, New York, NY...... Goldberg's     1,260       11/01/94       10/31/03      None
</TABLE>
 
EMPLOYEES
 
   
     At July 31, 1996, the Company had 76 employees, consisting of 44 full-time
and 32 part-time employees. The Company has never experienced a work stoppage
and no employees are represented by any labor union. The Company believes that
its employee relations are good.
    
 
LEGAL PROCEEDINGS
 
     From time to time the Company is involved in litigation arising in the
ordinary course of its business. The Company is not currently engaged in any
legal proceedings which are expected, individually or in the aggregate, to have
a material adverse effect on the Company.
 
                                       33
<PAGE>   37
 
                                   MANAGEMENT
 
   
DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL
    
 
     The current directors, executive officers and key personnel of the Company
are as follows:
 
   
<TABLE>
<CAPTION>
                       NAME                          AGE           POSITIONS WITH THE COMPANY
- --------------------------------------------------   ---    ----------------------------------------
<S>                                                  <C>    <C>
DIRECTORS AND EXECUTIVE OFFICERS
Andrew Thorburn...................................   54     Chairman of the Board, President and
                                                              Chief Executive Officer
Chris R. Decker...................................   48     Director, Executive Vice President, CFO
                                                              and Chief Administrative Officer
John Chitvanni....................................   47     Director
Anthony G. Foster.................................   39     Chief Operating Officer
Guy McNeil........................................   37     Vice President, Operations
KEY PERSONNEL
Raymond Johnson...................................   30     District Manager
Larry Wiese.......................................   30     Director of Design and Equipment
Tom Lisker........................................   64     Consulting Advertising Director
</TABLE>
    
 
     Each director is elected to hold office until the next annual meeting of
shareholders and until his successor is elected and qualified or until his
earlier resignation or removal. All officers serve at the discretion of the
Board of Directors.
 
     The following sets forth certain biographical information with respect to
the directors, executive officers and key employees of the Company.
 
DIRECTORS AND EXECUTIVE OFFICERS
 
   
     ANDREW THORBURN has been President, Chief Executive Officer and Chairman of
the Board of Directors of the Company since October 1993. From 1987 until
October 1993, he was President of All American Enterprises, Inc., Somerset, New
Jersey, an unrelated company that was the franchiser of Treats Bakery Stores
("Treats") and Perkits Frozen Yogurt ("Perkits"). From December 1994 to February
23, 1996, he served as Chairman of the Board of Blue Chip Computerware, Inc.
("Blue Chip"), which became a shareholder of the Company on July 1, 1994. See
"Principal Shareholders." He also has served as Chairman, President and Chief
Executive Officer of Jutland Enterprises Inc., founder of the Company,
commencing in March 1988. He has been in the food industry since 1985. Prior to
1985, he was Chief Marketing Officer of H.C. Copeland and Associates, Inc., a
subsidiary of the Travelers Insurance Company, which he helped to develop from a
start-up venture into a national sales company with 600 employees.
    
 
     CHRIS R. DECKER became Chief Financial and Administrative Officer of the
Company in May 1995, after serving for two years, first as a Divisional
Controller and later Assistant Corporate Controller, for Leslie Fay Corporation,
a leading apparel manufacturer. Previously, Mr. Decker, a certified public
accountant, worked with Mr. Thorburn as a consultant to various franchised food
operations, including Arby's and Schlotsky's. From 1988 to 1993, he and Mr.
Thorburn were chief operating officers and franchisers of Treats and Perkits.
Prior to that time, Mr. Decker had worked for eight years at Deloitte & Touche,
where he served as an audit supervisor during his last two years.
 
   
     JOHN CHITVANNI joined the Company's Board of Directors in March 1994. He
has been President of National Restaurant Search, a national search firm in the
hospitality industry, since 1981. He has 25 years of experience in the food
industry and previously was employed by Brigham's, Inc. and as a Regional
Manager for Dunkin Donuts Corp. Mr. Chitvanni attended Boston State College. He
has served as a guest speaker at industry conventions, written articles for
various industry publications and was a contributing author for the book "Dining
in Corporate America."
    
 
     ANTHONY G. FOSTER has been Chief Operating Officer of the Company since
January 1, 1996. Prior to that time, he spent five years with Arby's Inc., where
he had most recently been Vice President of Franchising and he previously served
as National Franchise Director for McMaid, Inc. and United Consumers Club of
 
                                       34
<PAGE>   38
 
Mericille, Indiana. From 1982 to 1986, Mr. Foster was with the 7-Eleven Division
of Southland Corporation, where he was responsible for all franchise development
in New England and approximately 40% of the personnel function for the 425
stores and corporate offices in the Northeast Division. He received his BS in
Management and Industrial Relations from the University of Bridgeport.
 
     GUY MCNEIL became Vice President, Operations, of the Company in November
1995. From October 1994 until November 1995, Mr. McNeil was a consultant in the
food service industry and actively involved in personal business ventures for
his own account. Until October, 1994, he was Director of Operations for Mrs.
Field's Cookies, where he supervised 142 stores and 12 district managers in the
Northeastern U.S. and Canada. From 1984 through 1989, he was the East Coast
Director of Village Inn Restaurants, where he was responsible for 26 stores and
four area managers in Eastern and Central Florida. Mr. McNeil earned his
business degree at Muskingum College in New Concord, Ohio.
 
     In addition to the foregoing directors, for a period of five years
following completion of the Offering, the Underwriter has the right, at its
option, to designate one member of the Board of Directors or a nonvoting
representative to the Board. As of the date hereof, the Underwriter had not made
any such designation. See "Underwriting."
 
KEY PERSONNEL
 
     RAYMOND JOHNSON has been with the Company as District Manager since March
25, 1996. His prior food service experience includes the development and
successful operation of restaurants under the Rainbow Cafe (Charlotte, NC), T.G.
Armadillos (Harrisonburg, VA) and Ball Meade (Harrisonburg, VA) concepts between
1986 and 1995. Mr. Johnson attended James Madison University where he majored in
Hotel and Restaurant Management.
 
     LARRY WIESE has been with the Company as Director of Design and Equipment
since its formation and, from 1990 until 1993 was employed by the Howberg
Equipment Company, one of the Company's predecessor companies, where he was
responsible for purchasing, shipping, and scheduling for construction and
installation of bagel equipment nationally.
 
     TOM LISKER has been associated with the Company and its predecessors since
1986 in his capacity as a principal of LGS, Inc., an advertising agency located
in New York City. Mr. Lisker serves as a consultant to the Company on
advertising and promotional campaigns, public relations and the development of
store design and concepts. He has extensive experience in the food service
industry and has provided advertising, public relations and promotional advice
for a number of clients within the industry, including General Foods, General
Mills, Howard Johnson's and Lum's Restaurants.
 
DIRECTORS' COMPENSATION
 
     Directors of the Company currently receive no compensation for their
service as such.
 
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
 
     As permitted pursuant to the corporate law of the State of New Jersey, the
Company's state of incorporation, the Charter and By-Laws require that the
Company indemnify its directors and officers against certain liabilities
incurred in their service in such capacities to the fullest extent permitted by
applicable law. These provisions would provide indemnification for liabilities
arising under the federal securities laws to the extent that such
indemnification is found to be enforceable under, and to be in accordance with
applicable law. In addition, as permitted by New Jersey law, the Charter
eliminates the personal liability of the directors and officers to the Company
or its shareholders for monetary damages for breaches of such director's or
officer's duty of care or other duties as a director or officer; except
liabilities for any breach of duty based upon an act or omission (a) in breach
of such person's duty of loyalty to the corporation or its shareholders, (b) not
in good faith or involving a knowing violation of law or (c) resulting in
receipt by such person of an improper personal benefit. This limitation on
liability could have the effect of limiting directors' and officers' liabilities
for violations of the federal securities laws.
 
                                       35
<PAGE>   39
 
OMNIBUS STOCK PLAN
 
     The Company has adopted the All American Food Group, Inc. Omnibus Stock
Plan (the "Plan") to promote the long-term growth and profitability of the
Company by (i) providing key directors, officers and employees of the Company
and its subsidiaries with incentives to improve shareholder value and contribute
to the growth and financial success of the Company and (ii) enabling the Company
to attract, retain and reward the best available persons for positions of
substantial responsibility. As described more fully below, the Plan provides for
grants of options to purchase specified numbers of shares of Common Stock at
predetermined prices.
 
     The following discussion represents only a summary of certain of the Plan
terms and is qualified in its entirety by reference to the complete Plan, a copy
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
 
   
     Shares Available; Maximum Awards; Participants.  A total of 150,000 shares
of the Company's Common Stock has been reserved for issuance pursuant to options
granted pursuant to the Plan. The Plan allows the Company to grant options to
employees, officers and directors of the Company and its subsidiaries; provided
that only employees of the Company and its subsidiaries may receive incentive
stock options under the Plan. The Company has not granted, and prior to
completion of the Offering does not expect to grant, any options.
    
 
     Stock Option Features.  Under the Plan, options to purchase the Company's
Common Stock may take the form of incentive stock options ("ISOs") under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code") or
nonqualified stock options ("NQSOs"). As required by Section 422 of the Code,
the aggregate fair market value (as defined in the Plan) of shares of Common
Stock (determined as of the date of grant of the ISO) with respect to which ISOs
granted to an employee are exercisable for the first time in any calendar year
may not exceed $100,000. The foregoing limitation does not apply to NQSOs.
 
     Initially, each option will be exercisable over a period, determined by the
Board of Directors or the Compensation Committee of the Board of Directors of
the Company, in its discretion, of up to ten years from the date of grant.
Options may be exercisable during the option period at such time, in such
amounts, and in accordance with such terms and conditions and subject to such
restrictions as are determined by the Board or the Compensation Committee and
set forth in option agreements evidencing the grant of such options; provided
that no option may be exercisable less than six months from its date of grant.
 
     The exercise price of options granted pursuant to the Plan is determined by
the Board or the Compensation Committee, in its discretion; provided that the
exercise price of an ISO may not be less than 100% of the fair market value (as
defined in the Plan) of the shares of the Company Common Stock on the date of
grant. The exercise price of options granted pursuant to the Plan is subject to
adjustment as provided in the Plan to reflect stock dividends, splits, other
recapitalizations or reclassifications or changes in the market value of the
Company Common Stock. In addition, the Plan provides that, in the event of a
proposed change in control of the Company (as defined in the Plan), the Board or
the Compensation Committee is to take such actions as it deems appropriate to
effectuate the purposes of the Plan and to protect the grantees of options,
which action may include (i) acceleration or change of the exercise dates of any
option; (ii) arrangements with grantees for the payment of appropriate
consideration to them for the cancellation and surrender of any option; and
(iii) in any case where equity securities other than Common Stock are proposed
to be delivered in exchange for or with respect to Common Stock, arrangements
providing that any option shall become one or more options with respect to such
other equity securities. Further, in the event the Company dissolves and
liquidates (other than pursuant to a plan of merger or reorganization), then
notwithstanding any restrictions on exercise set forth in the Plan or any grant
agreement pursuant thereto (i) each grantee shall have the right to exercise his
option at any time up to ten days prior to the effective date of such
liquidation and dissolution; and (ii) the Board or the Compensation Committee
may make arrangements with the grantees for the payment of appropriate
consideration to them for the cancellation and surrender of any option that is
so canceled or surrendered at any time up to ten days prior to the effective
date of such liquidation and dissolution. The Board or the Compensation
Committee also may establish a different period (and different conditions) for
such exercise, cancellation, or surrender to avoid subjecting the grantee to
liability under Section 16(b) of the Exchange Act.
 
                                       36
<PAGE>   40
 
     The shares purchased upon the exercise of an option are to be paid for by
the optionee in cash or cash equivalents acceptable to the Compensation
Committee. In addition, the Plan provides for broker-assisted cashless exercises
in the discretion of the Compensation Committee.
 
     Except as permitted pursuant to Rule 16b-3 under the Exchange Act, and in
any event in the case of an ISO, an option is not transferable except by will or
the laws of descent and distribution. In no case may the options be exercised
later than the expiration date specified in the option agreement.
 
     Plan Administration.  The Plan initially will be administered by the Board
of Directors or a Compensation Committee of the Board of Directors. At such
time, if any, as the Company is required to register pursuant to Section 12 of
the Exchange Act, the Plan will be administered by a Compensation Committee of
the Board of Directors, which will consist of at least two directors who are
"disinterested persons" within the meaning of Rule 16b-3, and "outside
directors" within the meaning of Section 162(m) of the Code. While members of
the Compensation Committee, directors are not permitted to receive discretionary
grants of options pursuant the Plan.
 
     The Compensation Committee will decide when and to whom to make grants, the
number of shares to be covered by the grants, the vesting schedule, the type of
awards and the terms and provisions relating to the exercise of the awards. The
Compensation Committee may interpret the Plan and may at any time adopt such
rules and regulations for the Plan as it deems advisable. The Board of Directors
may at any time amend or terminate the Plan and change its terms and conditions,
except that, without shareholder approval, no such amendment may (i) materially
increase the maximum number of shares as to which awards may be granted under
the Plan; (ii) materially increase the benefits accruing to Plan participants;
or (iii) materially change the requirements as to eligibility for participation
in the Plan.
 
     Accounting Effects.  Under current accounting rules, neither the grant of
options at an exercise price not less than the current fair market value of the
underlying Common Stock, nor the exercise of options under the Plan, is expected
to result in any charge to the earnings of the Company.
 
     Certain Federal Income Tax Consequences.  The following is a brief summary
of certain Federal income tax aspects of awards under the Plan based upon the
Federal income tax laws in effect on the date hereof. This summary is not
intended to be exhaustive and does not describe state or local tax consequences.
 
     Incentive Stock Options.  An optionee will not realize taxable income upon
the grant of an ISO. In addition, an optionee will not realize taxable income
upon the exercise of an ISO, provided that such exercise occurs no later than
three months after the optionee's termination of employment with the Company
(one year in the event of a termination on account of disability). However, an
optionee's alternative minimum taxable income will be increased by the amount
that the fair market value of the shares acquired upon exercise of an ISO,
generally determined as of the date of exercise, exceeds the exercise price of
the option. If an optionee sells the shares of Common Stock acquired upon
exercise of an ISO, the tax consequences of the disposition depend upon whether
the disposition is qualifying or disqualifying. The disposition of the shares is
qualifying if made more than two years after the date the ISO was granted and
more than one year after the date the ISO was exercised. If the disposition of
the shares is qualifying, any excess of the sale price of the shares over the
exercise price of the ISO would be treated as long-term capital gain taxable to
the option holder at the time of the sale. If the disposition is not qualifying,
i.e., a disqualifying disposition, the excess of the fair market value of the
shares on the date the ISO was exercised over the exercise price would be
compensation income taxable to the optionee at the time of the disposition, and
any excess of the sale price of the shares over the fair market value of the
shares on the date the ISO was exercised would be capital gain.
 
     Unless an optionee engages in a disqualifying disposition, the Company will
not be entitled to a deduction with respect to an ISO. However, if an optionee
engages in a disqualifying disposition, the Company generally will be entitled
to a deduction equal to the amount of compensation income taxable to the
optionee.
 
     Nonqualified Stock Options.  An optionee will not realize taxable income
upon the grant of an NQSO. However, when the optionee exercises the NQSO, the
difference between the exercise price of the NQSO and the fair market value of
the shares acquired upon exercise of the NQSO on the date of exercise is
compensation income taxable to the optionee. The Company generally will be
entitled to a deduction equal to the amount of compensation income taxable to
the optionee.
 
                                       37
<PAGE>   41
 
EXECUTIVE COMPENSATION
 
                           SUMMARY COMPENSATION TABLE
 
     The following summary compensation table sets forth certain information
regarding compensation paid during each of the indicated fiscal periods to the
person serving as the Company's Chief Executive Officer during the last year. No
executive officers received salary and bonus in an amount exceeding $100,000
during any of the fiscal periods.
 
<TABLE>
<CAPTION>
                                 NAME AND                             FISCAL      ANNUAL
                            PRINCIPAL POSITION                       PERIOD(1)    SALARY
        ----------------------------------------------------------   ---------    -------
        <S>                                                          <C>          <C>
        Andrew Thorburn, Chief Executive Officer..................      1996      $13,000
                                                                        1995      $39,000
                                                                        1994      $26,000
                                                                        1993      $     0
</TABLE>
 
- ---------------
(1) The Company's 1996 fiscal period was from November 1, 1995 to January 31,
     1996, its 1995 fiscal period was from February 1, 1995 to October 31, 1995,
     its 1994 fiscal period was from February 1, 1994 through January 31, 1995
     and its 1993 fiscal period was from September 27, 1993 (inception) through
     January 31, 1994.
 
                              CERTAIN TRANSACTIONS
 
   
     During 1994, the Company entered into a series of capital transactions with
Blue Chip Computerware, Inc. ("Blue Chip"), then an unaffiliated third party, as
a consequence of which Blue Chip became the Company's principal shareholder. In
two transactions on July 1, 1994 and August 15, 1994, Blue Chip acquired a total
of 1,200,000 shares of the Company's Common Stock, representing approximately
44% of the Company's then-outstanding Common Stock, for total consideration
consisting of 100,000 shares of the common stock of Jutland Enterprises, Inc.,
previously acquired by Blue Chip from the Company's founder, 400,000 shares of
Blue Chip common stock and $50,000 cash. Thereafter, the Company sold the
400,000 shares of Blue Chip common stock to an unaffiliated purchaser for total
consideration of $650,000.
    
 
   
     In December 1994, Andrew Thorburn, the Chairman, President and Chief
Executive Officer of the Company, was elected to the Board of Directors of Blue
Chip and shortly thereafter was elected as Chairman of the Blue Chip Board of
Directors, a non-executive position. Mr. Thorburn served in this capacity until
his resignation on February 23, 1996. Mr. Thorburn received no compensation for
his services as a member or Chairman of the Blue Chip Board of Directors.
    
 
   
     In March of 1995, the Company exchanged 825,000 shares of its Series C
redeemable Convertible Preferred Stock for 825,000 shares of its Common Stock
owned by Blue Chip. Subsequently, during 1995, Blue Chip purchased an additional
475,000 shares of the Series C Preferred Stock for which the Company received
aggregate consideration of $475,000. During 1996, the Company voluntarily
redeemed 402,000 shares of the Series C Preferred Stock held by Blue Chip at a
price of $1.00 per share. See "Description of Securities -- Preferred Stock."
    
 
     The Company believes the each of the foregoing transactions has been on
terms no less favorable to the Company than those that could have been obtained
from unaffiliated parties. It is the Company's intent that, in the future,
transactions with affiliated parties will be approved by a majority of the
Company's disinterested directors or otherwise as permitted by applicable law.
Any such future transactions are expected to be on terms no less favorable to
the Company than could be obtained from unaffiliated parties.
 
                                       38
<PAGE>   42
 
                             PRINCIPAL SHAREHOLDERS
 
   
     The following table sets forth, as of July 31, 1996, certain information as
to the beneficial ownership of Common Stock of each of the Company's directors,
all officers and directors as a group, and each person known by the Company to
be the beneficial owner of more than 5% of the Company's Common Stock.
    
 
   
<TABLE>
<CAPTION>
                                                                                           PERCENTAGE
                                                           AMOUNT AND NATURE OF         OF COMMON STOCK
                                                           BENEFICIAL OWNERSHIP     ------------------------
                  NAME AND ADDRESS OF                       IMMEDIATELY BEFORE       BEFORE         AFTER
                 BENEFICIAL STOCKHOLDER                       OFFERING(1)(2)        OFFERING     OFFERING(3)
                -----------------------                    ---------------------    --------     -----------
<S>                                                        <C>                      <C>          <C>
Andrew Thorburn.........................................          702,399             18.80%        16.20%
9 Law Drive
Fairfield, NJ 07006
Chris R. Decker.........................................          200,421(4)           5.23%         4.52%
9 Law Drive
Fairfield, NJ 07006
John Chitvanni..........................................           60,465(5)           1.60%         1.38%
910 West Lake Street
Roselle, IL 60172
Anthony G. Foster.......................................           10,000(6)           *            *
9 Law Drive
Fairfield, NJ 07006
Guy McNeil..............................................           10,000(7)           *            *
9 Law Drive
Fairfield, NJ 07006
Blue Chip Computerware, Inc.............................          739,203(8)          17.47%        15.30%
33 Dubon Court
Farmingdale, NY 11735
Mario and Ann Caputo....................................          200,000(9)           5.35%         4.61%
3 Libby Road
Norwalk, CT 06850
All officers and directors as a group (6 persons).......          983,285(10)         25.31%        21.92%
</TABLE>
    
 
- ---------------
 *   Less than 1%.
 (1) Except as otherwise indicated, each of the parties listed has sole voting
     and investment power with respect to all shares of Common Stock indicated.
     Beneficial ownership is calculated in accordance with Rule 13-d-3(d) under
     the Exchange Act.
 (2) Unless otherwise indicated, shares held are Common Stock.
   
 (3) Assumes that the listed shareholders will continue to hold the shares
     currently held thereby after completion of the Offering.
    
   
 (4) Consists of 100,421 shares of Common Stock and currently exercisable
     options (expiring January 1, 2001) to purchase 100,000 shares of Common
     Stock at $1.00 per share.
    
   
 (5) Consists of 465 shares of Common Stock and currently exercisable options
     (expiring November 1, 2000) to purchase 50,000 shares of Common Stock at a
     per share price of $1.00 held by Mr. Chitvanni and 10,000 shares of Common
     Stock held jointly by Mr. Chitvanni and his spouse. The 10,000 jointly-held
     shares are being offered for sale in the Concurrent Offering, subject to
     Mr. Chitvanni's agreement to refrain from selling any such shares during
     the 13-month period commencing with the date of this Prospectus except with
     the consent of the Underwriter. In the event that all such shares were
     sold, Mr. Chitvanni would beneficially own 50,465 shares of Common Stock,
     representing 1.16% of the Common Stock outstanding immediately subsequent
     to the Offering. See "Underwriting" and "Concurrent Offering."
    
   
 (6) Does not include 13,000 shares of Common Stock owned by Mr. Foster's
     mother-in-law, who shares Mr. Foster's residence. Mr. Foster disclaims
     beneficial ownership of these shares. All of the shares owned by Mr. Foster
     and his mother-in-law are being offered for sale in the Concurrent
     Offering, subject to Mr. Foster's agreement to refrain from selling any of
     the 10,000 shares owned directly by him during the 13-month period
     commencing with the date of this Prospectus except with the consent of the
     Underwriter. In the event that all such shares were sold, Mr. Foster would
     beneficially own no shares of Common Stock. See "Underwriting" and
     "Concurrent Offering."
    
   
 (7) All such shares are being offered for sale in the Concurrent Offering,
     subject to Mr. McNeil's agreement to refrain from selling any such shares
     during the 13-month period commencing with the date of this Prospectus
     except with the consent of the Underwriter. In the event that all such
     shares were sold, Mr. McNeil would beneficially own no shares of Common
     Stock. See "Underwriting" and "Concurrent Offering."
    
   
 (8) Consists of 236,200 shares of Common Stock and 466,203 shares of Series C
     Convertible Preferred Stock held by Blue Chip Computerware, Inc. and 5,900
     shares of Common Stock and 30,900 shares of Series C Preferred Stock held
     individually by the President of Blue Chip Computerware, Inc.
    
   
 (9) Consists of 100,000 shares of Common Stock individually held by each of
     Mario and Ann Caputo, husband and wife. All such shares are being offered
     for sale in the Concurrent Offering. See "Concurrent Offering."
    
   
(10) Includes all shares reflected above as beneficially owned by Messrs.
     Thorburn, Decker, Chitvanni, Foster and McNeil.
    
 
                                       39
<PAGE>   43
 
                              DESCRIPTION OF SECURITIES
 
     GENERAL
 
     The authorized capital stock of the Company consists of an aggregate of
24,000,000 shares of capital stock, consisting of 20,000,000 shares of Common
Stock, no par value, and 4,000,000 shares of Preferred Stock, no par value. As
of April 30, 1996, there were outstanding 3,735,200 shares of Common Stock and
190,000, 180,000, and 982,503 shares of Series A, Series B and Series C
Preferred Stock, respectively.
 
COMMON STOCK
 
     Holders of Common Stock have one vote per share on each matter submitted to
a vote of the shareholders. Holders of the Common Stock do not have preemptive
rights to purchase additional shares of Common Stock or other subscription
rights. The Common Stock carries no conversion rights and is not subject to
redemption or to any sinking fund provisions. All shares of Common Stock are
entitled to share equally in dividends from legally available sources as
determined by the Board of Directors, subject to any preferential dividend
rights of the Preferred Stock (described below). Upon dissolution or liquidation
of the Company, whether voluntary or involuntary, holders of the Common Stock
are entitled to receive assets of the Company available for distribution to the
stockholders, subject to the preferential rights of the Preferred Stock. As of
April 30, 1996, there were 297 holders of record of the Company's Common Stock.
 
PREFERRED STOCK
 
     Preferred Stock may be issued from time to time in one or more series. The
Board of Directors is authorized to determine the rights, preferences,
privileges and restrictions granted to, and imposed upon any series of Preferred
Stock and to fix the number of shares of any series of Preferred Stock and the
designation of any such series, subject, to the consent of the existing holders
of preferred stock, in certain instances. The issuance of Preferred Stock could
be used, under certain circumstances, as a method of preventing a takeover of
the Company and could permit the Board of Directors, without any action of the
holders of the Common Stock to issue Preferred Stock which could have a
detrimental effect on the rights of holders of the Common Stock, including loss
of voting control. Anti-takeover provisions that could be included in the
Preferred Stock when issued may depress the market price of the Company's
securities and may limit stockholders' ability to receive a premium on their
shares of Common Stock by discouraging takeover and tender offer bids.
 
     The Company has issued three series Preferred Stock, designated Series A
Partially Redeemable Convertible Preferred Stock ("Series A Preferred Stock"),
Series B Redeemable Convertible Preferred Stock ("Series B Preferred Stock") and
Series C Convertible Preferred Stock ("Series C Preferred Stock" and,
collectively with the Series A Preferred Stock and the Series B Preferred Stock,
"Convertible Preferred Stock").
 
     Each share of Convertible Preferred Stock is convertible, at the election
of the holder thereof, into shares of the Common Stock of the Company on a
one-for-one basis, subject to adjustment in the event of certain events
including (i) stock dividends, splits and reverse splits; (ii)
reclassifications; (iii) issuances of warrants or rights to holders of Common
Stock at a price per share less than the then-current market price of the Common
Stock (as defined); (iv) other dividends or distributions to shareholders of
assets or evidences of indebtedness; and (v) mergers, consolidations, sales of
all or substantially all of the Company's assets, statutory exchanges of its
securities and similar transactions. The Convertible Preferred Stock has no
preference as to dividends, which are payable only as and when declared by the
Board of Directors, and need not be declared, notwithstanding the declaration of
dividends with respect to any other class or series of the Company's capital
stock. The Convertible Preferred Stock has no preference upon liquidation of the
Company, but instead participates pro rata, on a share-for-share basis, with
shares of Common Stock in respect of any funds otherwise available for
distribution to shareholders upon such liquidation. Holders of Convertible
Preferred Stock have no voting rights, except as required by applicable law.
 
     The Company is obligated to redeem 40,000 shares (or such lesser number of
shares as is then outstanding) of the Series A Preferred Stock at a price of
$5.00 per share in the event that it engages in an
 
                                       40
<PAGE>   44
 
   
underwritten initial public offering of its Common Stock yielding net proceeds
to the Company (after the deduction of offering costs, commissions, attorneys'
fees and other costs and expenses associated therewith) of more than $2,000,000.
However, on August 12, 1996, the Company and Howard Goldberg, the holder of
180,000 shares of Series A Preferred Stock, entered into a Modification and
Settlement Agreement pursuant to which, among other things, Mr. Goldberg agreed
to convert 65,000 shares of Series A Preferred Stock to an equal number of
shares of Common Stock and to redeem his remaining Series A Shares. See
"Business -- Renegotiation of Certain Acquisition Terms."
    
 
     The Company is obligated to redeem 60,000 shares (or such lesser number of
shares as is then outstanding) of the Series B Preferred Stock at a price of
$5.00 per share in the event that it receives a capital infusion of more than
$1,000,000 (net of any offering costs, commissions, attorneys' fees and other
costs and expenses associated therewith). Therefore, upon completion of the
Offering made hereby, the Company expects to redeem 60,000 such shares. See "Use
of Proceeds." In addition, if the Company engages in an initial public offering
of its Common Stock and shares of Series B Preferred Stock remain outstanding 24
months thereafter, the Company is obligated to redeem 60,000 such shares (or
such lesser number of shares as is then outstanding) at a price of $5.00 per
share. The Company, at its election, also may redeem some or all of the shares
of Preferred Stock outstanding at any time upon payment of a redemption price
equal to $5.00 plus a premium thereon equal to 6% per annum measured from
September 1994 to the effective date of such redemption.
 
     The Series C Preferred Stock is not subject to mandatory redemption by
either the Company or at the election of the holders thereof.
 
WARRANTS
 
     In connection with the completion of this Offering, for nominal
consideration the Company will grant to the Underwriter warrants (the
"Underwriter's Warrants") to purchase 60,000 shares of Common Stock at an
initial exercise price of $     per share (130% of the initial public offering
price future shares sold in the Offering.) The Underwriter's Warrants are
exercisable for a period of four years commencing one year from the date of this
Prospectus. The shares of Common Stock issuable upon exercise of the
Underwriter's Warrants are identical to the Shares being sold in this Offering.
The Underwriter's Warrants contain anti-dilution provisions providing for
adjustment in the number of Warrants and the exercise price thereof under
certain circumstances. The Underwriter's Warrants also grant the holders thereof
certain rights of registration of the shares of Common Stock issuable upon
exercise of such Warrants. The Company is registering the Underwriter's
Warrants, as well as the underlying Common Stock pursuant to the Registration
Statement of which this prospectus forms a part. See "Underwriting" and
"Concurrent Offering."
 
TRANSFER AGENT
 
     The transfer agent for the Company's Common and Preferred Stock is
Continental Stock Transfer and Trust Company.
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
     Upon completion of the Offering, the Company will have outstanding an
aggregate of 4,335,200 shares of Common Stock. Of these, the 600,000 Shares
issued in the Offering will be freely transferable without restriction under the
Securities Act (excluding any shares purchased in the Offering by any person who
is or thereby becomes an "affiliate" of the Company). All of the 3,735,200
shares outstanding immediately prior to the Offering were issued in private
placements without registration under the Securities Act and, therefore, are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act.
 
     Of the 3,735,200 shares outstanding immediately prior to the Offering,
1,773,900 shares (the "Private Placement Shares") were issued in the Private
Placements and, pursuant to registration rights granted in connection therewith,
all of the Private Placement Shares are being registered for resale pursuant to
the
 
                                       41
<PAGE>   45
 
   
Registration Statement of which this Prospectus forms a part. So long as such
shares remain subject to an effective registration statement, and following any
sale pursuant thereto, such shares will be freely transferable without
restriction under the Securities Act (subject to a contractual limitation on
sales within six months following completion of the Offering). See "Concurrent
Offering." The remaining 1,961,300 shares of Common Stock outstanding prior to
this Offering are "restricted securities" as that term is defined under Rule
144. In addition, 240,000 shares underlying currently outstanding options and
60,000 shares underlying the Underwriter's Warrants will, upon issuance, be
restricted securities and any shares of Common Stock issued upon conversion of
the 1,352,503 shares of Preferred Stock outstanding prior to completion of the
Offering, prior to the expiration of the applicable holding period with respect
thereto likewise will be "restricted securities."
    
 
     In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has satisfied a two-year holding period may
sell within any three-month period a number of restricted shares which does not
exceed the greater of 1% of the then outstanding shares of such class of
securities or the average weekly trading volume during the four calendar weeks
prior to such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and the availability of current
public information about the Company. Rule 144 also permits, under certain
circumstances, the sale of shares by a person who is not an affiliate of the
Company with respect to restricted securities that satisfy a three-year holding
period, without regard to the volume or other resale limitations.
 
   
     The Company is unable to predict the effect that sales of Private Placement
Shares or sales under Rule 144 may have on the then prevailing market price of
the Common Stock, but such sales may have a substantial depressing effect on
such market price. However, holders of the 1,773,900 Private Placement Shares
who are not officers or directors of the Company have agreed not to sell, assign
or transfer any of their shares of Common Stock for at least six months from the
effective date of the Registration Statement of which this Prospectus forms a
part, without the prior consent of the Underwriter. The officers and directors
of the Company have agreed not to, directly or indirectly, sell, offer to sell,
grant an option for the sale of, transfer, assign, pledge, hypothecate or
otherwise encumber any shares of the Company's Common Stock currently held
thereby for 13 months from the effective date of the Registration Statement of
which this Prospectus forms a part. The remaining 1,961,300 shares of Common
Stock that will be "restricted securities" immediately subsequent to the
Offering will become eligible for sale at various times beginning in October
1996. See "Underwriting."
    
 
                                  UNDERWRITING
 
     Alexander, Wescott & Co., Inc., the Underwriter, has agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase
600,000 Shares of Common Stock. The Underwriter is committed to purchase and pay
for all of the Shares offered hereby if any are purchased. The Common Stock is
being offered by the Underwriter subject to prior sale, when, as and if
delivered to and accepted by the Underwriter and subject to approval of certain
legal matters by counsel and to certain other conditions, such as no adverse
changes in the Company and market conditions.
 
   
     The Underwriter has been in business for approximately two years and, as of
April 30, 1996, employed approximately ten brokers in three offices. Prior to
this Offering, the Underwriter has not acted as an underwriter in a public
offering. See "Risk Factors -- Limited Offering Experience of the Underwriter."
    
 
     The Underwriter has advised the Company that it proposes to offer the
Common Stock to the public at the initial public offering price set forth on the
cover page of this Prospectus. The Underwriter may allow to certain dealers who
are members of the NASD concessions, not in excess of $     per share, of which
not in excess of $     per share may be reallowed to other dealers who are
members of the NASD. After the commencement of the Offering, the public offering
price, concession and reallowance may be changed by the Underwriter.
 
     The Company has granted the Underwriter an over-allotment option,
exercisable during the 30-day period commencing with the date of this
Prospectus, to purchase from the Company at the initial offering
 
                                       42
<PAGE>   46
 
price less underwriting discounts, up to an aggregate of 90,000 additional
shares of Common Stock for the sole purpose of covering overallotments, if any.
The Company will be obligated, pursuant to this over-allotment option, to sell
such additional shares to the Underwriter.
 
     The Company has agreed to pay to the Underwriter a non-accountable expense
allowance of 3% of the gross proceeds of the Offering, of which $35,000 has been
paid as of the date of this Prospectus. The Company has also agreed to pay all
expenses in connection with qualifying the Common Stock offered hereby for sale
under the laws of such states as the Underwriter may designate, including
expenses of counsel retained for such purpose by the Underwriter.
 
   
     In connection with the Offering, the Company has agreed to sell to the
Underwriter, for nominal consideration, the Underwriter's Warrants. The
Underwriter's Warrants initially are exercisable at a price of 130% of the per
share initial public offering price of the Shares offered hereby, for a period
of four years commencing one year from the date of this Prospectus. The shares
of Common Stock issuable upon exercise of the Underwriter's Warrants are
identical to the Shares being sold in this Offering. The Underwriter's Warrants
contain anti-dilution provisions providing for adjustment in the number of
Warrants and the exercise price thereof under certain circumstances. The
Underwriter's Warrants also grant the holders thereof certain rights of
registration of the shares of Common Stock issuable upon exercise of such
Warrants.
    
 
     The Company will retain the Underwriter to provide investment banking
services for a period of 24 months following completion of the Offering at a
monthly fee of $3,000.
 
   
     The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act.
    
 
     The Underwriter has informed the Company that it does not expect sales to
any accounts over which it exercises discretionary authority to exceed 5% of the
shares of Common Stock offered by the Company.
 
   
     The holders of Common Stock outstanding as of the effective date of the
Registration Statement of which this Prospectus forms a part who are officers or
directors of the Company have agreed not to, directly or indirectly, sell, offer
to sell, grant an option for the sale of, transfer, assign, pledge, hypothecate
or otherwise encumber any of such shares of Common Stock (983,285 shares in the
aggregate) for a period of 13 months from the effective date of the Registration
Statement of which this Prospectus forms a part. See "Principal Shareholders."
    
 
     The Company has agreed with the Underwriter that, except as described in
this Prospectus, for a period of 90 days from the date of this Prospectus, it
will not issue any securities or grant options or warrants to purchase any
securities of the Company without the Underwriter's consent.
 
     The foregoing does not purport to be a complete statement of the terms and
conditions of the Underwriting Agreement and related documents, copies of which
are on file at the offices of the Underwriter, the Company and the Commission.
See "Additional Information."
 
PRICING THE OFFERING
 
     Prior to this Offering, there has been no public market for any of the
Company's securities. Consequently, the initial public offering price of the
Common Stock will be determined by negotiation between the Company and the
Underwriter. Factors to be considered in determining such price, in addition to
prevailing market conditions, include an assessment of the Company's prospects.
The public offering price of the Shares does not bear any relationship to the
Company's asset value, earnings, net financial condition, or other established
criteria of value applicable to the Company and should not be regarded as an
indication of the actual value or future market price of the Shares. Such prices
are subject to change as a result of market conditions and other factors, and no
assurance can be given that the Shares can be resold at its public offering
price.
 
                                       43
<PAGE>   47
 
                              CONCURRENT OFFERING
 
   
     Concurrently with the offering, the Company is also registering for resale,
from time to time, on behalf of the owners thereof, the Selling Securityholder
Securities consisting of 1,773,900 shares of Common Stock acquired by the
holders thereof in the Company's Private Placements, subject to the contractual
restrictions that the Selling Securityholders who are not officers or directors
of the Company may not sell their shares for six months following completion of
the Offering. The Selling Securityholders who are officers and directors of the
Company have agreed that they will not, directly or indirectly, sell, offer to
sell, grant an option for the sale of, transfer, assign, pledge, hypothecate or
otherwise encumber any shares of the Company's Common Stock currently held
thereby for a period of 13 months from the date of this Prospectus. See
"Management's Discussion and Analysis or Plan of Operation -- Liquidity and
Capital Resources."
    
 
     The Company will not receive any proceeds from sale of securities by the
Selling Securityholders.
 
                                 LEGAL MATTERS
 
   
     The validity of the securities offered hereby has been passed upon for the
Company by Dwyer & Canellis. Lehman & Eilen, Uniondale, New York will pass upon
certain legal matters for the Underwriter.
    
 
                                    EXPERTS
 
   
     The financial statements of the Company at January 31, 1995 and October 31,
1995 and for the fiscal periods then ended, appearing in this Prospectus and
Registration Statement of which this Prospectus forms a part have been audited
by DelSanto and DeFreitas, Certified Public Accountants, independent auditors,
as set forth in their report thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
    
 
                             ADDITIONAL INFORMATION
 
     The Company has filed with the Commission a registration statement under
the Securities Act with respect to the securities offered by this Prospectus. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits thereto. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement and
the exhibits thereto, which may be examined without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at the Regional Offices of the Commission at 7 World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained from the Public Reference Section of the Commission in
Washington, D.C. upon payment of the prescribed fees. Statements contained in
this Prospectus as to the contents of any contract or other documents referred
to herein are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
 
     The Company will, upon completion of the Offering, be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
and, in accordance therewith, will file reports and other information with the
Commission. Such reports and other information may be inspected and copied at
the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such materials can be obtained at prescribed
rates from the Commission at such address.
 
                                       44
<PAGE>   48
 
                ALL AMERICAN FOOD GROUP, INC., AND SUBSIDIARIES
 
                         INDEX TO FINANCIAL STATEMENTS
 
   
<TABLE>
<S>                                                                                     <C>
                                AUDITED FINANCIAL STATEMENTS
Report of DelSanto & DeFreitas, Certified Public Accountants.........................   F- 2
Consolidated Balance Sheets as of October 31, 1995 and January 31, 1995..............   F- 3
Consolidated Statements of Operations for the Nine Months Ended October 31, 1995 and
  the Year Ended January 31, 1995....................................................   F- 4
Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 1995 and
  the Year Ended January 31, 1995....................................................   F- 5
Consolidated Statements of Stockholders' (Deficit) Equity for the Nine Months Ended
  October 31, 1995 and the Year Ended January 31, 1995...............................   F- 6
Notes to Consolidated Financial Statements...........................................   F- 7
                                INTERIM FINANCIAL STATEMENTS
                                         (UNAUDITED)
Consolidated Balance Sheets as of April 30, 1996 and 1995............................   F-21
Consolidated Statements of Operations for the Six Months Ended April 30, 1996 and
  1995...............................................................................   F-22
Consolidated Statements of Operations for the Three Months Ended April 30, 1996 and
  1995...............................................................................   F-22
Consolidated Statements of Operations for the Three Months Ended January 31, 1996 and
  1995...............................................................................   F-22
Consolidated Statements of Cash Flows for the Six Months Ended April 30, 1996 and
  1995...............................................................................   F-23
Consolidated Statements of Common Stock, Non-Redeemable Preferred Stock and Other
  Stockholders' Equity for the Six Months Ended April 30, 1996 and 1995..............   F-24
Notes to Consolidated Financial Statements...........................................   F-25
</TABLE>
    
 
                                       F-1
<PAGE>   49
 
                     REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
 
To the Board of Directors and Stockholders of
All American Food Group, Inc. and Subsidiaries
Fairfield, New Jersey
 
   
     We have audited the accompanying consolidated balance sheets of All
American Food Group, Inc. (formerly Jutland Food Group, Inc.) and subsidiaries
(Note 1) as of January 31, 1995, and October 31, 1995 and the related
consolidated statements of operations and cash flows for the year ended January
31, 1995, and nine month period ended October 31, 1995 and the consolidated
statements of stockholders' (deficit) equity for the year ended January 31,
1995, and nine month period ended October 31, 1995.
    
 
     We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our 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 the audit provides 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 All American
Food Group, Inc. and subsidiaries as of January 31, 1995 and October 31, 1995,
the consolidated statements of operations and cash flows and changes in
stockholders' (deficit) equity for the year ended January 31, 1995, and nine
month period ended October 31, 1995 in conformity with generally accepted
accounting principles.
    
 
/s/ DelSanto & DeFreitas
 
DelSanto & DeFreitas
Closter, New Jersey
 
July 1, 1996
 
                                       F-2
<PAGE>   50
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
 
                           CONSOLIDATED BALANCE SHEET
 
   
<TABLE>
<CAPTION>
                                                                               OCTOBER 31,    JANUARY 31,
                                                                                  1995           1995
                                                                               -----------    -----------
<S>                                                                            <C>            <C>
ASSETS
Current Assets:
    Cash....................................................................   $    53,703    $    55,472
    Accounts and notes receivable, net of allowances for possible losses of
     $15,000 and $50,000, respectively......................................       107,641         95,980
    Inventories.............................................................       123,649        182,364
    Note Receivable.........................................................        13,505        --
    Prepaid expenses........................................................        45,251         30,000
                                                                               -----------    -----------
         Total Current Assets...............................................       343,749        363,816
Property, Plant and Equipment, at cost less accumulated depreciation and
  amortization of $145,589 and $134,802, respectively.......................       517,902        711,686
Intangible Assets, net of accumulated amortization of $230,339 and $127,129
  respectively..............................................................       342,117        561,579
Acquisition Costs, net of accumulated amortization of $40,324 and $24,456
  respectively..............................................................        65,427         81,295
Security Deposits...........................................................        30,234         25,185
Note Receivable, long-term..................................................        39,365        --
Investment in Jutland Enterprises Inc.'s common stock.......................       --             --
                                                                               -----------    -----------
         Total Assets.......................................................   $ 1,338,794    $ 1,743,561
                                                                               ===========    ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
    Notes payable -- acquisition............................................   $   --         $   200,000
    Accounts payable and accrued expenses...................................     1,054,721        573,687
    Deferred franchising revenue, current portion...........................        76,005        --
    Capitalized lease obligations -- current maturities.....................        75,653         71,064
    Loans from stockholders -- current maturities...........................        34,049         37,529
    Current maturities of long-term debt....................................         6,041         20,556
                                                                               -----------    -----------
         Total Current Liabilities..........................................     1,246,469        902,836
Notes payable -- acquisition................................................       --             --
Capitalized lease obligations...............................................        84,502        143,215
Loans from stockholders.....................................................        15,041         45,809
Deferred franchising revenue................................................        39,365        --
Deferred tax liability......................................................       --              78,000
Long-term debt..............................................................         1,590            347
                                                                               -----------    -----------
         Total Liabilities..................................................     1,386,967      1,170,207
                                                                               -----------    -----------
Commitments and contingencies
Stockholders' (Deficit) Equity:
    Common stock, no par value, 10,000,000 shares authorized, 1,891,300 and
     2,711,300 shares issued and outstanding, respectively..................       876,150      1,277,000
    Convertible preferred stock, no par value, Series A, 190,000 shares
     authorized, 190,000 and 120,000 shares issued and outstanding,
     respectively; Series B, 180,000 shares authorized, 80,000 and 180,000
     shares issued and outstanding, respectively; Series C, 1,600,000 shares
     authorized, 1,369,500 and 0 shares issued and outstanding,
     respectively...........................................................     1,022,580         54,000
    Additional paid-in capital..............................................       365,000        365,000
    Accumulated deficit.....................................................    (2,311,903)    (1,122,646)
                                                                               -----------    -----------
                                                                                   (48,173)       573,354
                                                                               -----------    -----------
         Total Liabilities and Stockholders' (Deficit) Equity...............   $ 1,338,794    $ 1,743,561
                                                                               ===========    ===========
</TABLE>
    
 
          The Accompanying Notes to Consolidated Financial Statements
              are an integral part of these financial statements.
 
                                       F-3
<PAGE>   51
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENT OF OPERATIONS
 
   
<TABLE>
<CAPTION>
                                                                      NINE MONTHS
                                                                         ENDED       YEAR ENDED
                                                                      OCTOBER 31,    JANUARY 31,
                                                                         1995           1995
                                                                      -----------    -----------
<S>                                                                   <C>            <C>
Revenues:
     Retail store sales............................................   $ 1,422,341    $ 1,178,638
     Franchising revenue...........................................       377,201        --
     Equipment and product sales...................................       550,726        804,340
                                                                       ----------    -----------
                                                                        2,350,268      1,982,978
                                                                       ----------    -----------
Operating expenses:
     Cost of Sales -- equipment costs and store operations,
      exclusive of depreciation and amortization...................     1,739,147      1,602,538
     Cost of Sales -- franchising activities, exclusive of
      depreciation and amortization................................       213,408        --
     Selling, general and administrative expenses..................     1,146,365      1,100,919
     Depreciation and amortization.................................       211,463        197,347
     Acquisition costs.............................................       170,352         74,256
     Impairment of assets..........................................       --             676,038
                                                                       ----------    -----------
                                                                        3,480,735      3,651,098
                                                                       ----------    -----------
Operating loss.....................................................    (1,130,467)    (1,668,120)
Interest expense...................................................        21,078         38,651
                                                                       ----------    -----------
Loss before extraordinary item.....................................    (1,151,545)    (1,706,771)
Extraordinary item -- Gain from extinguishment of debt.............       --             644,150
                                                                       ----------    -----------
Net loss...........................................................   $(1,151,545)   $(1,062,621)
                                                                       ==========    ===========
Shares outstanding:
     Weighted average number of common shares
       outstanding.................................................     1,886,300      1,966,167
     Additional shares.............................................     1,891,070      1,891,070
                                                                       ----------    -----------
Adjusted shares outstanding........................................     3,777,370      3,857,237
                                                                       ==========    ===========
Net loss per share before extraordinary item.......................   $     (0.30)   $     (0.44)
                                                                       ==========    ===========
Net gain per share -- extraordinary item...........................       --         $      0.16
                                                                       ==========    ===========
Net loss per share after extraordinary item........................   $     (0.30)   $     (0.28)
                                                                       ==========    ===========
</TABLE>
    
 
          The Accompanying Notes to Consolidated Financial Statements
              are an integral part of these financial statements.
 
                                       F-4
<PAGE>   52
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
 
   
<TABLE>
<CAPTION>
                                                                      NINE MONTHS
                                                                         ENDED       YEAR ENDED
                                                                      OCTOBER 31,    JANUARY 31,
                                                                         1995           1995
                                                                      -----------    -----------
<S>                                                                   <C>            <C>
Cash Flows from Operating Activities:
     Net loss......................................................   $(1,151,545)   $(1,062,621)
     Adjustments to reconcile net loss to net cash (used in)
      provided by operating activities:
          Depreciation and amortization............................       211,463        197,347
          Provision for possible losses on accounts receivable.....       (35,000)        20,000
          Gain on sale of subsidiary and retail store..............       (34,369)       --
          Issuance of common stock for services....................         1,750        --
          Impairment of assets.....................................       --             676,038
          Early extinguishment of debt.............................       --            (644,150)
          Decrease (increase) in:
               Accounts receivable.................................       (26,661)        56,920
               Inventories.........................................        58,715        (40,500)
               Prepaid expenses....................................       (15,251)       (20,000)
               Security deposits...................................       (16,800)       (10,420)
          Increase (decrease) in:
               Accounts payable and accrued expenses...............       524,937        335,905
               Deferred franchising revenue........................        62,500        --
                                                                        ---------    -----------
                    Total adjustments..............................       731,284        571,140
                                                                        ---------    -----------
                    Net cash (used in) operating activities........      (420,261)      (491,481)
                                                                        ---------    -----------
Cash Flows from Investing Activities:
     Capital expenditures..........................................       (43,503)      (137,345)
     Proceeds from sale of subsidiary and retail store, net of cash
      balance of subsidiary........................................        64,953        --
     Payment for Sammy's stock acquisition.........................       --             (75,000)
     Acquisition costs paid........................................       --             (20,000)
                                                                        ---------    -----------
          Net cash provided by (used in) investing activities......        21,450       (232,345)
                                                                        ---------    -----------
Cash Flows from Financing Activities:
     Proceeds from issuance of preferred stock.....................       541,480        --
     Redemption of preferred stock.................................      (100,000)       --
     Proceeds from sale of corporate stockholder's stock...........       --             700,000
     Cash overdraft acquired as part of Sammy's acquisition........       --              (6,291)
     Proceeds from capitalized lease obligations...................        17,843         20,361
     Payments of capitalized lease obligations.....................       (52,587)       (20,814)
     Proceeds from loans from stockholders.........................        33,250        --
     Payments of loans from stockholders...........................       (38,702)       (17,129)
     Proceeds from issuance of long-term debt......................         3,250        --
     Payments of long-term debt....................................        (7,492)       (21,090)
     Payments of acquisition indebtedness..........................       --            (150,000)
                                                                        ---------    -----------
          Net cash provided by financing activities................       397,042        505,037
                                                                        ---------    -----------
Net (decrease) in cash.............................................        (1,769)      (218,789)
Cash and cash equivalents -- beginning of period...................        55,472        274,261
                                                                        ---------    -----------
Cash and cash equivalents -- end of period.........................   $    53,703    $    55,472
                                                                        =========    ===========
</TABLE>
    
 
          The Accompanying Notes to Consolidated Financial Statements
              are an integral part of these financial statements.
 
                                       F-5
<PAGE>   53
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
 
   
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
    
 
   
<TABLE>
<CAPTION>
                                  COMMON STOCK              PREFERRED STOCK        ADDITIONAL
                             -----------------------    -----------------------     PAID-IN       RETAINED
                              SHARES        AMOUNT       SHARES        AMOUNT       CAPITAL       (DEFICIT)        TOTAL
                             ---------    ----------    ---------    ----------    ----------    -----------    -----------
<S>                          <C>          <C>           <C>          <C>           <C>           <C>            <C>
BALANCE AT JANUARY 31,
  1994....................   1,250,000    $  577,000            0    $        0     $365,000     $   (60,025)   $   881,975
Year Ended January 31,
  1995:
Common stock issuance.....   1,461,300       700,000           --            --           --              --        700,000
Preferred stock
  issuance................          --            --      300,000    $   54,000           --              --         54,000
Net Loss..................          --            --           --            --           --      (1,062,621)    (1,062,621)
                             ---------    ----------    ---------    ----------     --------     -----------    -----------
BALANCE AT JANUARY 31,
  1995....................   2,711,300     1,277,000      300,000        54,000      365,000      (1,122,646)       573,354
Nine Months Ended October
  31, 1995:
Conversion of common stock
  to preferred stock......    (825,000)     (402,600)     825,000       402,600           --              --              0
Common stock issuance for
  services................       5,000         1,750           --            --           --                          1,750
Preferred stock
  issuance................          --            --      614,500       565,980           --                        565,980
Preferred stock
  redemption..............          --            --     (100,000)           --           --        (100,000)      (100,000)
Retained deficit of
  subsidiary sold.........          --            --           --            --           --          62,288         62,288
Net Loss..................          --            --           --            --           --      (1,151,545)    (1,151,545)
                             ---------    ----------    ---------    ----------     --------     -----------    -----------
BALANCE AT OCTOBER 31,
  1995....................   1,891,300    $  876,150    1,639,500    $1,022,580     $365,000     $(2,311,903)   $   (48,173)
                             =========    ==========    =========    ==========     ========     ===========    ===========
</TABLE>
    
 
          The Accompanying Notes to Consolidated Financial Statements
              are an integral part of these financial statements.
 
                                       F-6
<PAGE>   54
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                OCTOBER 31, 1995
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
(a) ORGANIZATION --
 
     All American Food Group, Inc. (the "Company"), was incorporated by Jutland
Enterprises Inc., ("Enterprises"), a Delaware corporation, on September 27, 1993
under the laws of the State of New Jersey. The Company was formed for the
purpose of acquiring and operating a retail bagel business and a bakery
equipment distribution and assembly business. At incorporation, Enterprises
acquired 937,500 shares of the Company's common stock in exchange for $300,000
and $277,000 of assets. During the fiscal year ended January 31, 1994,
Enterprises contributed $365,000 to the Company as additional paid-in capital.
 
     Shortly after incorporation, Mr. Andrew Thorburn, Chief Executive Officer
of the Company and Chief Executive Officer of Enterprises, acquired 312,500
shares of the Company in exchange for 400,000 shares of Enterprises' common
stock. Since the transferor had no historical cost basis for his acquisition of
the Enterprises' stock, no value has been assigned to the shares transferred to
the Company.
 
     The Company was incorporated under the name Jutland Food Group, Inc., and
changed its name to All American Food Group, Inc. on October 24, 1995.
 
     Effective October 31, 1995 the Company changed its fiscal year end from
January 31st to October 31st.
 
  Initial Acquisition --
 
   
     On October 20, 1993, the Company completed the acquisition of substantially
all the assets of three interrelated companies, Howberg Bakery Equipment Co.,
Inc., Bagels of New Milford, Inc. and Goldberg's Famous Bagels of Orangeburg,
Inc., hereinafter referred to as the "Goldberg's acquisition," or the "Goldberg
assets," for approximately $1,612,000. Under the terms of the acquisition, the
purchase price consisted of cash consideration of $300,000, a $1,000,000 two
year note, (see Note 8), the assumption of a note in the amount of $35,000 and
$277,000 of consideration provided by Enterprises. In each case the seller of
the assets was Howard Goldberg, hereinafter referred to as "Goldberg."
    
 
     In accordance with Accounting Principle Board Opinion No. 16, the
acquisition has been accounted for under the purchase method. Under such
accounting policy, the cost of the acquisition is reported on the basis of the
value of the consideration given or the estimated fair value of the net assets
acquired, whichever is more readily determinable.
 
   
     The consideration given of $1,612,000 had been used for the assignment of
cost to the tangible and identifiable intangible assets with the excess assigned
to goodwill. This excess of the aggregate purchase price over the estimated fair
value of the net assets of the acquired business, in the approximate amount of
$408,000, was recognized as goodwill and was being amortized over 40 years. The
values assigned to identifiable assets and goodwill were subsequently
re-evaluated and adjusted as discussed below.
    
 
     Simultaneously with the acquisition of the Goldberg assets, various other
agreements and covenants, including a consulting agreement, lease agreement,
security agreement, lease assignments, non-compete agreements, franchise and
tradename rights, consents to use corporate names, and mutual indemnifications
were also entered into by the parties.
 
   
     During fiscal year ended January 31, 1995, the $1,000,000 note and other
aspects of the initial transaction were re-evaluated and re-negotiated as
discussed below and in Note 8.
    
 
                                       F-7
<PAGE>   55
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                OCTOBER 31, 1995
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

  Goldberg Contract Re-negotiations and Preferred Stock Issuance --
 
   
     On September 29, 1994, the Company completed a re-evaluation of the assets
acquired, a reconciliation of all outstanding indebtedness related to the
acquisition, and a re-negotiation of its contractual relationship with Goldberg
(the "Reconciliation Agreement"). As a result, certain provisions of the
original purchase agreement, the consulting agreement and the lease agreement
were modified. Further, as discussed in Note 1 (m), the Company recognized an
impairment to the values it had originally assigned to the assets it purchased.
    
 
     Under the terms of the Reconciliation Agreement, the Company exchanged
indebtedness of approximately $886,000 for an immediate cash payment of $11,500,
an additional cash payment of $50,000 paid on January 10, 1995, 120,000 shares
of newly issued Series A Convertible Preferred Stock, and an assumption of a
note in the approximate amount of $126,250 representing the remaining mortgage
owed by Goldberg on the building then occupied by the Company (the "Citizen's
debt" or the "Citizen's mortgage"). Additionally the Company received from
Goldberg 240,000 shares of Enterprises common stock.
 
     Each share of Series A Convertible Preferred Stock is convertible into one
share of common stock, can be redeemed by the Company for $5.00 a share, and
provides that in the event of a capital infusion of $2,000,000 or more into the
Company, 40,000 shares must be redeemed by the Company for $5.00 per share. The
Series A Preferred Stock was recorded at $54,000, approximating fair market
value at the reconciliation date.
 
     Due to the absence of a readily ascertainable market value, the Company has
assigned no value to the 240,000 shares of Enterprises' common stock.
 
     This re-negotiation has been accounted for as an early extinguishment of
debt, resulting in an extraordinary gain from the early extinguishment of debt
in the amount of $644,150.
 
     Additional provisions of the Reconciliation Agreement include a security
interest by Goldberg in 937,000 shares of common stock of the company held by
Enterprises, a security interest by Goldberg in the two retail establishments,
the termination of the rent obligation under the lease, and an extension and
modification of the consulting agreement and non-compete agreement.
 
     In October of 1995, further re-negotiations took place as a result of which
a) ownership of the Company's retail store in New Milford, NJ was transferred to
Goldberg, b) Goldberg's responsibilities under the consulting agreement were
reduced to three days a week and extended to December 31, 1996, c) the non-
compete and non-disclosure provisions were extended to December 31, 1997, d)
Goldberg assumed responsibility for the Citizen's debt, e) Goldberg assumed
responsibility for $25,000 of the Company's payables and f) and an additional
70,000 shares of Series A Preferred Stock, valued at $23,500, were issued to
Goldberg.
 
     Subsequently, in January 1996, the Citizen's mortgage was satisfied by
Goldberg.
 
  "Sammy's New York Bagels" Stock Acquisition --
 
     On September 29, 1994, the company completed the acquisition, hereinafter
referred to as the "Sammy's acquisition," of 100% of the outstanding stock of
four interrelated corporations, Queen Anne Distributors, Inc., Rochelle
Distributors, Inc., G.I.D. Distributors, Inc., and Sammy's New York Bagels,
Inc., conducting business under the trade name "Sammy's New York Bagels,"
hereinafter referred to as "Sammy's."
 
     Under the terms of the acquisition, the Company purchased the stock of the
Sammy's corporations in exchange for cash of $75,000, assumption of indebtedness
of approximately $441,000 and issuance of
 
                                       F-8
<PAGE>   56
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                OCTOBER 31, 1995
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

  "Sammy's New York Bagels" Stock Acquisition -- (continued)
180,000 shares of newly issued Series B Convertible Preferred Stock. Each share
of the Series B Preferred Stock is convertible into one share of the Company's
common stock, can be redeemed by the Company for $5.00 a share, and must be
partially redeemed by the Company under certain circumstances as described
below.
 
     The redemption provisions of the Series B Preferred Stock provide that
60,000 shares are redeemable at $5.00 per share within 30 days of a single
equity infusion of more than $1,000,000, and an additional 60,000 are redeemable
at $5.00 per share 24 months after an initial public offering of the Company's
common stock.
 
     In accordance with Accounting Principle Board Opinion No. 16, the Sammy's
acquisition has been accounted for under the purchase method. The cost of the
acquisition is recorded at $516,000 based on the amount of the cash
consideration paid and the indebtedness assumed. No value has been assigned to
the Series B Preferred Stock issued as part of the consideration in the
acquisition. The accompanying consolidated financial statements include the
elimination of the investment in parent and equity in subsidiaries, and adjust
for the purchase of the assets acquired. The allocation of the assigned values
to the assets has been determined by management. The acquisition arrangement
provides for employment contracts and non-compete agreements.
 
(b) BUSINESS --
 
     During the nine months ended October 31, 1995, the Company changed its
business focus and became principally engaged in the development of a retail
chain of franchised bagel stores, including the operation of Company-owned
stores for training and marketing and promotional activities, and the
distribution of bagel bakery equipment and related products to the franchise
system. The Company markets both single unit and market development franchise
agreements. The Company, in the normal course of business, also markets stores
it acquires to individuals who operate as franchisees. The Company franchises
its concepts under the names "Goldberg's Original Old World Bagels" and "Sammy's
New York Bagels." During the nine months ended October 31, 1995, the Company
ceased to be actively engaged in the sales of bagel bakery equipment to
independent retail operators.
 
(c) PRINCIPLES OF CONSOLIDATION --
 
   
     The accompanying consolidated financial statements include the accounts of
All American Food Group, Inc. and its subsidiaries as disclosed above. The
acquisition of all subsidiaries, represented by the "Sammy's" transaction,
occurred on September 29, 1994. Accordingly, the consolidated balance sheet
includes the accounts of the subsidiaries as of October 31, 1995 and January 31,
1995. The accompanying consolidated statements of operations and cash flows only
include activities of the subsidiaries for the nine months ended October 31,
1995 and the period from September 29, 1994 (date of acquisition), through
January 31, 1995. All significant inter-company balances and transactions have
been eliminated.
    
 
(d) CASH AND CASH EQUIVALENTS --
 
   
     At October 31, 1995 and January 31, 1995 cash represented monies on deposit
in financial institutions.
    
 
                                       F-9
<PAGE>   57
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                OCTOBER 31, 1995

    
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
    

(e) CONCENTRATION OF CREDIT RISK --
 
     The Company maintains cash and cash equivalents with various financial
institutions. Company policy is designed to limit exposure with any one
institution. Credit risk with respect to trade accounts receivable is minimal,
due to the terms under which the Company transacts its business.
 
(f) INVENTORIES --
 
     Inventories are stated at the lower of cost (first-in, first-out ("FIFO"))
or market.
 
(g) PROPERTY, PLANT AND EQUIPMENT --
 
     Equipment, fixtures and leasehold improvements are recorded at cost.
Equipment under capital leases is recorded at the net present value of the
associated lease payments. Major replacements or improvements are capitalized.
Maintenance and repairs are charged to earnings as incurred. For financial
statement purposes, depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the assets, which range
from three to ten years.
 
(h) INTANGIBLE ASSETS AND AMORTIZATION --
 
     Intangible assets consist primarily of specifically identifiable items such
as a favorable lease agreement, a retail license, non-compete agreements,
customer lists, drawings and blueprints, a proprietary formula and kosher
certification. The values assigned to intangible assets are based on an
independent appraisal and management's estimates, and are being amortized on a
straight-line basis over the estimated useful lives of such assets, which range
from three and one-half to nine and one-half years.
 
(i) ACQUISITION COSTS --
 
     Acquisition costs represent fees incurred in the Goldberg and Sammy's
acquisitions and are being amortized over their useful lives of five years.
 
   
(j) VALUATION OF NON-CURRENT INVESTMENTS --
    
 
     The non-current portfolio of securities represented by the investment in
Enterprises' common stock is carried at zero value. Currently there is no market
for the shares. Any gain realized from the disposition of these securities will
be recognized at the time of disposition.
 
   
(k) FRANCHISE REVENUE RECOGNITION --
    
 
   
     As discussed above, the Company began franchising activities during the
nine months ended October 31, 1995. Franchise revenue includes the sale of
single unit franchises, the sale of Company-owned stores to franchisees, the
sale of market development franchises and ongoing royalty and advertising fees.
    
 
   
     Single unit franchise agreements ("Single Unit Agreements") provide for
payment of a nonrefundable initial franchise fee (an "Initial Franchise Fee"), a
weekly royalty on gross sales, and a weekly cooperative advertising fund
contribution. The Company's material obligations under the terms of all Single
Unit Agreements are assisting in site selection and franchisee training. Initial
Franchise Fees under Single Unit Agreements are recognized as revenues when the
Company has no further material obligations in respect of the establishment of
such franchise, which occurs upon the opening of the store. As of October 31,
1995, the
    
 
                                      F-10
<PAGE>   58
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                OCTOBER 31, 1995
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
   
(k) FRANCHISE REVENUE RECOGNITION -- (CONTINUED)
    
   
Company had deferred recognition of Initial Franchise Fees relating to four
stores, which management anticipates will open within the next year. See note 9.
    
 
   
     Market Development Agreements provide for the payment, by the Market
Developer, of a nonrefundable initial fee (a "Market Development Fee") based on
the size, population and overall market potential of the territory subject to
the Market Development Agreement (the "Market Area"). The Market Developer
assumes substantially all of the responsibilities that otherwise would be
assumed by the Company, as franchiser within the Market Area. In exchange, the
Market Developer receives (i) the exclusive right to build stores for the Market
Developer's own account or to seek third party franchisees within the Market
Area and (ii) the right to share with the Company, on a 50/50 basis, initial and
ongoing single store fees within the Market Area. Under Market Development
Agreements, the Company's obligations in respect of the development of single
unit franchises within the Market Area are limited to (i) approval of
franchisees presented by the Market Developer and (ii) approval of store sites.
The Company has no further material obligations in respect of a Market
Development Agreement at the time of execution of the Agreement. Market
Development Fees paid in cash or by promissory notes fully collateralized by
liquid assets or as to which the Company has obtained an independent third-party
valuation, are recognized as revenues by the Company upon execution of the
Market Development Agreement and payment of the fee. In the absence of such
collateral or valuation, the Company recognizes Market Development Fees on a
cash basis as payments on such notes are received. The Company records
non-interest bearing notes with a term in excess of one year at a discount for
imputed interest thereon. As of October 31, 1995, the Company had deferred the
recognition of $52,870 of revenues relating to a note from a Market Developer.
See notes 3 and 8.
    
 
   
     The Company's portion of the Initial Franchise Fee on single unit
franchises sold within a Market Developer's Market Area is recognized as
revenues when the Company has no further material obligations in respect of the
establishment of such franchise, which occurs upon opening of the store. As of
October 31, 1995, the Company had deferred recognition of Initial Franchise Fees
relating to one such store.
    
 
   
     The Company recognizes revenues from the sale of Company-owned stores to
franchisees upon consummation of the sale transaction.
    
 
     The Company recognizes franchise royalty revenue when it is earned.
 
   
     Franchise revenue for the nine months ended October 31, 1995 of $377,201
consists of initial non-recurring franchise and market development fees of
$7,500 and $117,824, respectively, initial non-recurring revenues from the sale
of Company-owned stores of $247,777 and ongoing royalties of $4,100.
    
 
   
(l) NET LOSS PER SHARE --
    
 
     Net loss per common share was determined by dividing net loss by the
weighted average number of common shares outstanding, as adjusted to reflect all
shares and options issued within the twelve months prior to May 3, 1996, (the
date the Company filed a registration statement for an initial public offering),
that were issued for consideration per share or at an exercise per share less
than the anticipated public offering price of $6.00 per share. These additional
shares have been treated as if they were outstanding for all periods presented.
The treasury stock method has been used to determine the net increase in the
number of shares outstanding. As such, the computation of fully diluted net loss
per share was anti-dilutive in each of the periods presented; therefore, the
amounts reported for primary and fully-diluted loss are the same.
 
                                      F-11
<PAGE>   59
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                OCTOBER 31, 1995
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
   
(m) LONG-LIVED ASSETS -- IMPAIRMENT OF ASSETS --
    
 
   
     In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company
records impairment losses on long-lived assets used in operations, including
goodwill and intangible assets, when events and circumstances indicate that the
assets might be impaired and the fair value of these assets, determined by
reference to the undiscounted cash flows estimated to be generated by those
assets, are less than the carrying amounts of those assets. During the fiscal
year ending January 31, 1995, the application of SFAS No. 121 resulted in the
Company recognizing an intangible asset and goodwill impairment charge of
$676,038, representing the difference between the carrying amount of these
assets and their then-current fair value so determined. As disclosed in Note 1,
this adjustment was the result of the re-evaluation of the assets it had
purchased and a reconciliation of all outstanding indebtedness and contractual
obligations with Goldberg. This re-evaluation resulted in the Company reducing
the estimated cash flows attributed to the Goldberg assets. In determining the
magnitude of adjustment, the Company developed its best estimate of fair value
based on future undiscounted operating cash flows, and determined that these
cash flows would not be sufficient to recover the carrying value of the
intangible assets and goodwill. Consequently, the Company reduced the recorded
value of these assets to the estimated future undiscounted cash flows associated
therewith, and recognized an impairment loss equal to the difference between
that amount and the prior carrying value of these assets. As a result, goodwill
has been written off entirely, and the carrying value of the identifiable
intangible assets has been reduced by approximately $290,000, during the fiscal
year ended January 31, 1995.
    
 
   
(n) STOCK OPTIONS --
    
 
   
     The Company has granted stock options to a key vendor with an exercise
price not less than fair market value per share of common stock on the date the
option was granted. The Company accounts for stock option grants in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees" and,
accordingly, recognizes no compensation or other expense for the stock option
grants.
    
 
2. INVENTORY:
 
     A summary of inventory is as follows:
 
   
<TABLE>
<CAPTION>
                                                                  OCTOBER 31,    JANUARY 31,
                                                                     1995           1995
                                                                  -----------    -----------
        <S>                                                       <C>            <C>
        Equipment and parts....................................    $  69,544      $ 166,364
        Food and paper goods...................................       54,105         16,000
                                                                  ----------     ---------- 
             Total inventories.................................    $ 123,649      $ 182,364
                                                                    ========       ========
</TABLE>
    
 
   
3. NOTE RECEIVABLE
    
 
   
     Note receivable at October 31, 1995, represents the present value of the
unpaid portion of the Market Development Fee due in connection with the sale of
a Market Area. The note is non-interest bearing and is paid by the application,
by the Company, of fifty percent (50%) of all compensation otherwise due to the
    
 
                                      F-12
<PAGE>   60
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                OCTOBER 31, 1995
 
   
3. NOTE RECEIVABLE -- (CONTINUED)
    
   
Market Developer against the balance. Management estimates that $39,365 of the
balance will be collected after one year, as follows:
    
 
   
<TABLE>
        <S>                                                                   <C>
        Note receivable (less unamortized discount based on an imputed
          interest rate of 9%).............................................   $52,870
        Less current portion...............................................    13,505
                                                                              -------
        Note receivable, long-term.........................................   $39,365
                                                                              =======
</TABLE>
    
 
   
4. FIXED ASSETS:
    
 
     Fixed assets and accumulated depreciation consists of the following:
 
   
<TABLE>
<CAPTION>
                                                           OCTOBER 31,    JANUARY 31,      ESTIMATED
                                                              1995           1995         USEFUL LIVES
                                                           -----------    -----------    --------------
<S>                                                        <C>            <C>            <C>
Machinery and equipment -- retail stores................    $  333,237     $  555,715           7 years
Office furniture and warehouse equipment................       169,951        111,906           7 years
Trucks and delivery vehicle.............................        26,370         26,370      3 to 5 years
Leasehold improvements -- retail stores.................       133,933        152,497     Term of lease
                                                           -----------    -----------
                                                               663,491        846,488
Accumulated depreciation and amortization...............      (145,589)      (134,802)
                                                           -----------    -----------
Fixed assets net of accumulated depreciation............    $  517,902     $  711,686
                                                             =========      =========
</TABLE>
    
 
     As disclosed in Note 10, certain debt is secured by fixed assets.
 
   
5. INTANGIBLE ASSETS:
    
 
     Identifiable intangible assets, recorded as a result of the Goldberg's and
Sammy's acquisitions, and accumulated amortization consist of the following:
 
   
<TABLE>
<CAPTION>
                                                      OCTOBER 31,    JANUARY 31,      ESTIMATED
                                                         1995           1995        USEFUL LIVES
                                                      -----------    -----------    -------------
        <S>                                           <C>            <C>            <C>
        Kosher certification.......................    $  145,771     $  157,771          5 years
        Favorable lease agreement..................         6,250         22,500      3 1/2 years
        Non-compete agreements.....................       192,507        214,507          4 years
        Customer lists.............................        74,432         93,434          4 years
        Proprietary formula........................       107,338        121,338          5 years
        Retail store license.......................            --         27,000      9 1/2 years
        Drawings and blueprints....................        46,158         52,158          5 years
                                                      -----------    -----------
        Total intangible assets....................       572,456        688,708
        Accumulated amortization...................      (230,339)      (127,129)
                                                      -----------    -----------
        Total intangible assets, net of accumulated
          amortization.............................    $  342,117     $  561,579
                                                        =========      =========
</TABLE>
    
 
                                      F-13
<PAGE>   61
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                OCTOBER 31, 1995
 
   
6. ACQUISITION COSTS:
    
 
     Acquisition costs represent fees incurred in consummating the Goldberg's
and Sammy's acquisitions. These costs are being amortized over an estimated
useful life of five years. Acquisition costs and accumulated amortization are as
follows:
 
   
<TABLE>
<CAPTION>
                                                                  OCTOBER 31,    JANUARY 31,
                                                                     1995           1995
                                                                  -----------    -----------
        <S>                                                       <C>            <C>
        Total acquisition costs................................    $ 105,751      $ 105,751
        Accumulated amortization...............................      (40,324)       (24,456)
                                                                  -----------    -----------
        Net acquisition costs..................................    $  65,427      $  81,295
                                                                    ========       ========
</TABLE>
    
 
   
7. INVESTMENT IN JUTLAND ENTERPRISES INC. COMMON STOCK:
    
 
     The Company acquired stock in Enterprises from Andrew Thorburn as part of
its initial capitalization, as discussed in Note 1. Consistent with the
transferor's cost basis, this stock has been assigned no value by the Company.
 
   
     The Company received additional shares of Enterprises in separate
transactions involving Blue Chip Computerware, Inc., discussed in Note 13, and
in the re-negotiations with Goldberg discussed in Note 1. Due to the absence of
a readily ascertainable market value, no value has been assigned to these
shares.
    
 
   
8. NOTE PAYABLE -- GOLDBERG ASSET ACQUISITION:
    
 
     The Company issued a $1,000,000 two year note as part of the consideration
given in the purchase of the Goldberg assets as disclosed in Note 1.
 
     As part of the 1994 Goldberg re-negotiation also discussed at Note 1, the
Company was obligated to Citizen's First National Bank of New Jersey for the
remaining Citizen's mortgage balance of approximately $126,250. The Company
defaulted on its obligation to pay such mortgage, and Citizen's brought an
action against various parties, including the Company, to foreclose on the
mortgage. The outstanding balance on the Citizen's mortgage, including unpaid
interest and late charges, of $150,000 and the balance due to Goldberg of
$50,000, are reflected as a current liability in the accompanying consolidated
financial statements at January 31, 1995. In October 1995 Goldberg re-assumed
responsibility for the Citizen's mortgage. Subsequent to October 31, 1995 the
mortgage was satisfied.
 
   
9. DEFERRED FRANCHISING REVENUE
    
 
   
     Deferred franchising revenue at October 31, 1995, represents Initial
Franchise Fees received in connection with single store franchises where the
stores have not yet opened and the present value of the portion of the Market
Development Fee paid by means of a non-interest bearing note as to which the
Company has not as yet recognized revenue, and are as follows:
    
 
   
<TABLE>
        <S>                                                                   <C>
        Single store Initial Franchise Fees received, stores not yet
          open.............................................................   $62,500
        Market Development Fees............................................    52,870
                                                                              -------
                                                                              115,370
        Less current portion...............................................    76,005
                                                                              -------
        Deferred franchising revenue, long-term............................   $39,365
                                                                              =======
</TABLE>
    
 
                                      F-14
<PAGE>   62
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                OCTOBER 31, 1995
 
   
10. EQUIPMENT LEASE OBLIGATIONS:
    
 
     The Company and its subsidiaries are obligated under various equipment
lease arrangements which have been capitalized in the accompanying financial
statements. Property, plant, and equipment presented on the consolidated balance
sheet includes approximately $259,000 of assets capitalized under these lease
arrangements. Accumulated depreciation recorded on these assets approximated
$54,000 at October 31, 1995. These lease obligations are due in monthly
installments including interest expense at annual interest rates ranging from
8.3% to 24.5%. The lease obligations are payable through dates ranging from
February 1996 through November 1999.
 
     The future minimum payments required under the lease arrangements, with
their present value at October 31, 1995, are as follows:
 
<TABLE>
<CAPTION>
                                                          PRESENT     INTEREST   MINIMUM
                    YEAR ENDED OCTOBER 31,                 VALUE      EXPENSE    PAYMENTS
        -----------------------------------------------   --------    -------    --------
        <S>                                               <C>         <C>        <C>
        1996...........................................   $ 75,653    $23,976    $ 99,629
        1997...........................................     58,828      9,784      68,612
        1998...........................................     25,120      2,686      27,806
        1999...........................................        554          6         560
                                                          --------    -------    --------
                                                          $160,155    $36,452    $196,607
                                                          ========    =======    ========
</TABLE>
 
   
11. LOANS FROM STOCKHOLDERS:
    
 
     Loans from stockholders primarily consist of obligations assumed in the
Sammy's acquisition. These loans are due in monthly installments including
interest expense at annual rates ranging from 5.0% to 16.76%. The loans are
payable through dates ranging from February 1996 through February 1999.
 
     The future minimum payments required under the loans, with their present
value at October 31, 1995, are as follows:
 
<TABLE>
<CAPTION>
                                                             PRESENT    INTEREST   MINIMUM
                      YEAR ENDED OCTOBER 31,                  VALUE     EXPENSE    PAYMENTS
        --------------------------------------------------   -------    -------    -------
        <S>                                                  <C>        <C>        <C>
        1996..............................................   $34,049    $2,245     $36,294
        1997..............................................     9,587       636      10,223
        1998..............................................     4,057       180       4,237
        1999..............................................     1,397        15       1,412
                                                             -------    -------    -------
                                                             $49,090    $3,076     $52,166
                                                             =======    ======     =======
</TABLE>
 
                                      F-15
<PAGE>   63
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                OCTOBER 31, 1995
 
   
12. LONG-TERM DEBT:
    
 
     Long-term debt is summarized as follows:
 
   
<TABLE>
<CAPTION>
                                                                  OCTOBER 31,    JANUARY 31,
                                                                     1995           1995
                                                                  -----------    -----------
        <S>                                                       <C>            <C>
        Minimum payment on note payable to Tilden Financial
          Corporation in monthly installments of $1,521
          including interest, through October 1995, secured by
          equipment............................................          --        $12,222
        Minimum payment on note payable to Bank of New York in
          monthly installments of $347 plus interest at the
          bank's prime rate plus 1.5% per annum, through
          February 1997, secured by equipment..................     $ 6,041          8,681
        Notes payable to individual in monthly installments of
          $153 including interest at the annual rate of 12.5%,
          payable through September 1996.......................       1,590             --
                                                                  ---------      ---------  
                                                                      7,631         20,903
        Current portion of long-term debt......................       6,041         20,556
                                                                  ---------      ---------  
        Long-term debt.........................................     $ 1,590        $   347
                                                                   ========       ========
</TABLE>
    
 
   
13. BLUE CHIP COMPUTERWARE INC. STOCK SUBSCRIPTION:
    
 
     On July 1, 1994 and August 15, 1994, the Company entered into two separate
stock purchase agreements with Blue Chip Computerware Inc. ("Blue Chip"), a
publicly traded company whose stock trades under the symbol BCHP. Under the
terms of the agreements, the Company issued a total of 1,460,000 newly issued
shares of common stock, of which 1,200,000 shares were issued to Blue Chip and
260,000 shares were issued to a financial services firm for arranging the
transaction. Consequently, Blue Chip became the owner of 44% of the then-issued
and outstanding common stock of the Company.
 
     In exchange for the 1,460,000 shares, the Company received, in aggregate,
$50,000, 100,000 shares of Enterprises common stock owned by the Blue Chip, and
400,000 shares of Blue Chip common stock. The 400,000 shares of Blue Chip common
stock were subsequently sold in two separate transactions to a third party. The
aggregate proceeds from the sale of the 400,000 shares was $650,000.
 
     In the accompanying consolidated financial statements, the value assigned
to the common stock issued to Blue Chip is $700,000, comprised of the $50,000
cash paid to the company by Blue Chip, and $650,000 paid for the 400,000 shares
of Blue Chip common stock sold. No value has been assigned to the 100,000 shares
of Enterprises, due to the absence of a readily ascertainable market value.
 
   
     In February 1995, the Company exchanged 825,000 shares of the Company's
newly issued Series C Convertible Preferred Stock for 825,000 shares of the
common stock acquired by Blue Chip, reducing Blue Chip's holdings of common
stock to 19%. See Note 15.
    
 
   
14. INCOME TAXES:
    
 
     The Company has adopted SFAS No. 109 and is a C Corporation subject to
federal and state income taxes. The Company has changed its fiscal year end to
October 31 for tax purposes. At October 31, 1995, there were consolidated net
operating loss carry-forwards of approximately $750,000 expiring in 2010. Due to
the current period operating loss, no amount has been provided for corporate
income taxes.
 
                                      F-16
<PAGE>   64
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                OCTOBER 31, 1995
 
   
14. INCOME TAXES -- (CONTINUED)
    
     In accordance with SFAS No. 109, the difference between the tax bases and
the assigned value of the assets for financial reporting purposes of
approximately $650,000 resulting from the Goldberg and Sammy's acquisitions will
not result in taxable or deductible amounts in future years and no deferred
asset or liability has been recognized because of the magnitude of the net
operating loss carryforward. In the event the Company generates taxable income
in excess of the net operating loss carryforward, a deferred tax liability will
be recognized.
 
   
15. RELATED PARTY TRANSACTIONS:
    
 
     As of January 31, 1995, Blue Chip held 44% of the Company's common stock.
In March 1995, Blue Chip and the Company entered into an agreement whereby Blue
Chip exchanged 825,000 shares of the Company's common stock for 825,000 shares
of the Company's Series C Convertible Preferred Stock, thereby reducing its
holdings of common stock to 19%. During the nine months ended October 31, 1995,
Blue Chip purchased an additional 425,000 shares of the Company's Series C
Preferred Stock at a price of $1.00 per share. Each share of the Series C
Preferred Stock may be redeemed by the Company for $5.00 a share, and can be
converted into one share of the Company's common stock. The Company has no
obligation to redeem any of the Series C Preferred shares.
 
     Additionally, during this period, the Company's President purchased 70,000
shares of Series C Preferred Stock at the price of $1.00 per share.
 
   
16. EXTRAORDINARY ITEM -- GAIN FROM EXTINGUISHMENT OF DEBT:
    
 
     On September 29, 1994, and as further explained in Note 1, the Company
completed a re-negotiation and reconciliation of all outstanding indebtedness
and contractual obligations with Goldberg. This reconciliation resulted in the
extinguishment of the unpaid remaining balance due of $874,400 on the original
$1,000,000 note issued in connection with the Goldberg acquisition in exchange
for the assumption of the Citizen's mortgage in the amount of $126,250, a
$50,000 payment to Goldberg, and the issuance of 120,000 shares of the Company's
Series A Preferred Stock valued at $54,000. For financial reporting purposes, an
extraordinary item consisting of a $644,150 gain from the extinguishment of debt
has been recognized. Due to the operating losses in excess of the gain, an
accrual for income taxes attributable to the gain has not been provided.
 
   
17. STOCK OPTIONS:
    
 
     The Company has granted options to purchase 80,000 shares of the Company's
common stock to a supplier. The options were issued in two transactions; 30,000
options with an exercise price of $0.50 per share were issued on February 1,
1995 and 50,000 options with an exercise price of $1.00 per share were issued on
August 1, 1995. The options expire five years after their issue date and are
exercisable at any time during the period they are outstanding. The following
summarizes the activity during the periods presented:
 
<TABLE>
<CAPTION>
                                                                           OPTION PRICE
                                                                SHARES      PER SHARE
                                                                ------    --------------
        <S>                                                     <C>       <C>
        Options outstanding at January 31, 1995..............     None
             Granted.........................................   80,000    $0.50 to $1.00
                                                                ------
        Options outstanding at October 31, 1995..............   80,000    $0.50 to $1.00
                                                                ======
</TABLE>
 
                                      F-17
<PAGE>   65
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                OCTOBER 31, 1995
 
   
18. SUPPLEMENTAL CASH FLOW INFORMATION:
    
 
   
<TABLE>
<CAPTION>
                                                                 NINE MONTHS
                                                                    ENDED       YEAR ENDED
                                                                 OCTOBER 31,    JANUARY 31,
                                                                    1995           1995
                                                                 -----------    -----------
        <S>                                                      <C>            <C>
        Interest paid.........................................    $  21,078      $  21,640
        Income taxes paid.....................................    $       0      $       0
        Non-cash investing and financing activities:
        Exchange of accounts receivable for note
          payable -- acquisition..............................    $  50,000      $      --
        Issuance of preferred stock for debt..................       23,500         54,000
        Sale of Market Area for note receivable...............       52,870         --
        Acquisition of Sammy's for assumption of debt.........           --        441,000
        Issuance of common stock for assets...................           --             --
        Goldberg assets acquired for assumption and issuance
          of debt.............................................           --             --
                                                                 -----------    -----------
                                                                  $ 126,370      $ 495,000
                                                                  =========       ========
</TABLE>
    
 
   
19. COMMITMENTS AND CONTINGENCIES:
    
 
(A) SAMMY'S FRANCHISING FEES --
 
     During the first sixty months after the Sammy's acquisition, the former
shareholders of the sellers are entitled to receive monthly payments equal to
10% of the single unit franchising fees paid to the Company and, during the
first twelve months after the acquisition and 20% of the fees collected on
international licensing or franchising. At October 31, 1995 $8,100 was due and
payable under this provision.
 
(B) LEASES --
 
   
     The Company rents real and personal property under various non-cancelable
leases expiring at various dates through 2003. Certain of the leases include
renewal options and provisions for additional rental payments based on various
formulas such as cost of living adjustments, real estate tax and operating
expense escalations and escalations based on gross revenues. Total rent expense
charged to operations for the nine months ended October 31, 1995 approximated
$166,000. Included in this amount is approximately $7,000 of contingent rental
expense. Total rent expense charged to operations for the year ended January 31,
1995 approximates $148,000, all of which represented minimum rental obligations.
    
 
     Minimum annual rental commitments under leases in effect at October 31,
1995 are summarized as follows:
 
<TABLE>
<CAPTION>
                                                                                 EQUIPMENT
                        YEAR ENDED OCTOBER 31,                    REAL ESTATE     & OTHER
        -------------------------------------------------------   -----------    ---------
        <S>                                                       <C>            <C>
        1996...................................................    $ 134,000      $17,000
        1997...................................................      129,000        1,000
        1998...................................................      114,000           --
        1999...................................................      113,000           --
        2000...................................................       80,000           --
        Later years............................................      203,000           --
                                                                  -----------    ---------
        Total minimum lease payments...........................    $ 773,000      $18,000
                                                                    ========     ========
</TABLE>
 
                                      F-18
<PAGE>   66
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                OCTOBER 31, 1995
 
   
19. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
    
(c) CONSULTING AGREEMENT --
 
     In connection with the Goldberg acquisition the Company entered into a
consulting agreement which was modified in September of 1994, and further
re-negotiated in October 1995. The modified consulting agreement provides for
monthly consulting fees of $4,333 payable through December 1996, aggregating
$61,000 at October 31, 1995. Goldberg is prohibited from conducting any business
activity in competition with the operations of the Company through December
1996.
 
(d) EMPLOYMENT AGREEMENTS --
 
     The Company entered into employment contracts with the three principal
former shareholders of Sammy's as part of the acquisition. The employment
contracts provide for annual salaries through December 31, 1996 and include
non-compete covenants through December 31, 1998. The Company's aggregate
obligation for future payments under these agreements was $237,000 at October
31, 1995.
 
   
     Total compensation expenses under these contracts for the nine months ended
October 31, 1995 and the year ended January 31, 1995 were $170,352 and $74,256,
respectively and have been reflected as acquisition costs on the accompanying
Statement of Operations.
    
 
(e) OBLIGATION TO REDEEM PREFERRED STOCK --
 
     The agreements governing the Sammy's and Goldberg's acquisitions contain
provisions under which the Company must redeem shares of convertible preferred
stock. Under the Sammy's agreement 60,000 shares of the Series B Preferred Stock
are redeemable at $5.00 per share within 30 days of a single equity infusion of
more than $1,000,000, and an additional 20,000 shares are redeemable at $5.00
per share within 24 months of an initial public offering. The Goldberg agreement
stipulates that the Company must redeem 40,000 shares of the Series A Preferred
stock at $5.00 per share after an initial public offering of at least
$2,000,000.
 
   
20. SUBSEQUENT EVENTS:
    
 
     In addition to certain subsequent events disclosed above, the following
additional material events have occurred subsequent to the date of these
financial statements.
 
(a) PRIVATE PLACEMENTS --
 
     Subsequent to October 31, 1995, the Company completed private placements
(the "Private Placements") of its common stock pursuant to which it received an
aggregate of $2,413,986, net of expenses of $48,514. Included in the proceeds
was property consisting of two retail bagel stores in the final stages of
construction, valued at $410,000. The proceeds from the Private Placements to
date have been used to (i) fund the Company's operations; (ii) the voluntary
redemption of shares of the Company's Preferred Stock; (iii) reduce trade
payables; and (iv) acquire capital assets. The Company intends to apply the
remainder of these proceeds for working capital purposes.
 
(b) PREFERRED STOCK TRANSACTIONS --
 
     The Company sold 100,000 shares of Series B Preferred Stock to the former
owners of Sammy's for consideration of $1.00 per share. In connection with this
transaction the Company's obligation to redeem Series B Preferred Stock within
24 months an initial public offering increased from 20,000 shares to 60,000
shares.
 
                                      F-19
<PAGE>   67
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                OCTOBER 31, 1995
 
   
20. SUBSEQUENT EVENTS -- (CONTINUED)
    
(c) VOLUNTARY REDEMPTION OF PREFERRED STOCK --
 
     The Company voluntarily redeemed 416,997 shares of Series C Preferred
Stock. Of this total, 401,997 shares were redeemed from an affiliate, Blue Chip,
for consideration of $1.00 per share, equivalent to the price Blue Chip paid to
acquire the shares. This was done in connection with the financial
reorganization of Blue Chip.
 
(d) STOCK OPTIONS --
 
   
     The Company granted options to purchase 160,000 shares of the Company's
common stock; 10,000 options were granted to a customer, 50,000 options were
granted to a director and 100,000 options were granted to the Company's Chief
Financial Officer. The options are exercisable $1.00 per share and expire in
2001.
    
 
                                      F-20
<PAGE>   68
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                  (UNAUDITED)
 
   
<TABLE>
<CAPTION>
                                                                                       APRIL 30,
                                                                               --------------------------
                                                                                  1996           1995
                                                                               -----------    -----------
<S>                                                                            <C>            <C>
ASSETS
Current Assets:
    Cash....................................................................   $   896,132    $    21,339
    Accounts and notes receivable, net of allowances for possible losses of
     $15,000 in 1996 and 1995...............................................        46,079         94,782
    Notes Receivable........................................................        69,846             --
    Inventories.............................................................        97,485        170,664
    Prepaid expenses........................................................       126,500         30,000
                                                                               -----------    -----------
         Total Current Assets...............................................     1,236,042        316,785
Property, Plant and Equipment, at cost less accumulated depreciation and
  amortization of $197,426 and $162,868 respectively........................       909,176        712,590
Intangible Assets, net of accumulated amortization of $294,522 and $165,254
  respectively..............................................................       277,934        523,454
Acquisition Costs, net of accumulated amortization of $50,899 and $29,744
  respectively..............................................................        54,852         76,007
Security Deposits...........................................................        30,435         28,066
Notes Receivable, long-term.................................................       193,143             --
Investment in Jutland Enterprises Inc.'s common stock.......................            --             --
                                                                               -----------    -----------
         Total Assets.......................................................   $ 2,701,582    $ 1,656,902
                                                                               ===========    =========== 
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
    Notes payable -- acquisition............................................   $        --    $   150,000
    Accounts payable and accrued expenses...................................       852,366        763,778
    Deferred franchising revenue, current portion...........................       109,846             --
    Capitalized lease obligations -- current maturities.....................        73,377         92,074
    Loans from stockholders -- current maturities...........................        14,425         56,038
    Current maturities of long-term debt....................................         4,746         13,254
                                                                               -----------    -----------
         Total Current Liabilities..........................................     1,054,760      1,075,144
Capitalized lease obligations...............................................        48,933        138,092
Loans from stockholders.....................................................         8,884         29,738
Deferred franchising revenue................................................       193,143             --
Deferred tax liability......................................................            --         78,000
Long-term debt..............................................................            --          3,874
                                                                               -----------    -----------
         Total Liabilities..................................................     1,305,720      1,324,848
                                                                               -----------    -----------
Redeemable preferred stock, no par value Series A, 40,000 shares issued and
  outstanding, Series B, 120,000 shares issued and outstanding..............       707,540             --
                                                                               -----------    -----------
Commitments and contingencies
Common stock, no par value, 10,000,000 shares authorized, 3,735,200 and
  1,886,300 shares issued and outstanding respectively......................     3,360,136        874,400
Non-redeemable convertible preferred stock, no par value, Series A, 190,000
  shares authorized, 150,000 and 120,000 shares issued and outstanding
  respectively; Series B, 180,000 shares authorized, 60,000 shares and
  80,000 shares issued and outstanding respectively; Series C, 1,600,000
  shares authorized, 982,503 and 1,025,000 shares issued and outstanding
  respectively..............................................................       393,043        656,600
Other Stockholders' Equity:
    Additional paid-in capital..............................................            --        365,000
    Accumulated deficit.....................................................    (3,064,857)    (1,563,946)
                                                                               -----------    -----------
                                                                                   688,322        332,054
                                                                               -----------    -----------
    Total Liabilities and Stockholders' Equity..............................   $ 2,701,582    $ 1,656,902
                                                                               ===========    =========== 
</TABLE>
    
 
          The Accompanying Notes to Consolidated Financial Statements
              are an integral part of these financial statements.
 
                                      F-21
<PAGE>   69
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                  (UNAUDITED)
 
   
<TABLE>
<CAPTION>
                                     SIX MONTHS ENDED APRIL    THREE MONTHS ENDED APRIL     THREE MONTHS ENDED
                                              30,                        30,                    JANUARY 31,
                                    ------------------------   ------------------------   -----------------------
                                       1996          1995         1996          1995         1996         1995
                                    -----------   ----------   -----------   ----------   ----------   ----------
<S>                                 <C>           <C>          <C>           <C>          <C>          <C>
Revenues:
    Retail store sales............  $   646,317   $1,045,246   $   340,325   $  514,581   $  305,992   $  530,665
    Franchising revenue...........      195,639           --       165,690           --       29,949           --
    Equipment and product sales...      296,999      289,481       139,516      145,682      157,483      143,799
                                    -----------   ----------   -----------   ----------   ----------   ----------
                                      1,138,955    1,334,727       645,531      660,263      493,424      674,464
                                    -----------   ----------   -----------   ----------   ----------   ----------
Operating expenses:
    Cost of Sales -- equipment
      costs and store operations,
      exclusive of depreciation
      and amortization............      735,268    1,147,907       407,583      582,762      327,685      565,145
    Selling, general and
      administrative expenses.....      893,430      728,223       471,153      272,537      422,277      455,686
    Depreciation and
      amortization................      126,592      154,696        67,397       71,479       59,195       83,217
    Acquisition costs.............      113,568      113,568        56,784       56,784       56,784       56,784
                                    -----------   ----------   -----------   ----------   ----------   ----------
                                      1,868,858    2,144,394     1,002,917      983,562      865,941    1,160,832
                                    -----------   ----------   -----------   ----------   ----------   ----------
Operating loss....................     (729,903)    (809,667)     (357,386)    (323,299)    (372,517)    (486,368)
Interest expense..................       23,051       46,989         9,863       18,001       13,188       28,988
                                    -----------   ----------   -----------   ----------   ----------   ----------
Net loss..........................  $  (752,954)  $ (856,656)  $  (367,249)  $ (341,300)  $ (385,705)  $ (515,356)
                                    ============  ==========   ============  ==========   ==========   ==========
Adjusted net loss for net loss per
  common share calculation:
    Net loss......................  $  (752,954)  $ (856,656)  $  (367,249)  $ (341,300)
    Increase in carrying amount of
      redeemable preferred
      stock.......................     (707,540)          --      (707,540)          --
                                    -----------   ----------   -----------   ----------
    Net loss attributable to
      common stock................  $(1,460,494)  $ (856,656)  $(1,074,789)  $ (341,300)
                                    ============  ==========   ============  ==========
Shares outstanding:
    Weighted average number of
      common shares outstanding...    1,886,905    2,305,201     1,887,523    1,886,500    1,886,300    2,710,437
    Additional shares.............    1,891,070    1,891,070     1,891,070    1,891,070    1,891,070    1,891,070
                                    -----------   ----------   -----------   ----------   ----------   ----------
Adjusted shares outstanding.......    3,777,975    4,196,271     3,778,593    3,777,570    3,777,370    4,601,507
                                    ============  ==========   ============  ==========   ==========   ==========
Net loss per common share.........  $     (0.39)  $    (0.20)  $     (0.28)  $    (0.09)  $    (0.11)  $    (0.11)
                                    ============  ==========   ============  ==========   ==========   ==========
</TABLE>
    
 
          The Accompanying Notes to Consolidated Financial Statements
              are an integral part of these financial statements.
 
                                      F-22
<PAGE>   70
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (UNAUDITED)
 
   
<TABLE>
<CAPTION>
                                                                           SIX MONTHS ENDED
                                                                               APRIL 30,
                                                                        -----------------------
                                                                           1996         1995
                                                                        ----------    ---------
<S>                                                                     <C>           <C>
Cash Flows from Operating Activities:
     Net loss........................................................   $ (752,954)   $(856,656)
     Adjustments to reconcile net loss to net cash (used in) provided
      by operating activities:
          Depreciation and amortization..............................      126,592      154,696
          Provision for possible losses on accounts receivable.......           --      (35,000)
          Decrease (increase) in:
               Accounts receivable...................................       61,562      129,563
               Notes receivable......................................        3,700           --
               Inventories...........................................       26,164       21,780
               Receivable from sale of common stock..................                   150,000
               Prepaid expenses......................................      (81,249)     (20,000)
               Security deposits.....................................         (200)     (12,551)
          Increase (decrease) in:
               Accounts payable and accrued expenses.................     (202,355)     278,611
               Deferred franchising revenue..........................      (26,200)          --
                                                                        ----------    ---------
                    Total adjustments................................      (91,986)     667,099
                                                                        ----------    ---------
                    Net cash (used in) operating activities..........     (844,940)    (189,557)
                                                                        ----------    ---------
Cash Flows from Investing Activities:
     Capital expenditures............................................      (33,109)     (86,789)
                                                                        ----------    ---------
          Net cash (used in) investing activities....................      (33,109)     (86,789)
                                                                        ----------    ---------
Cash Flows from Financing Activities:
     Proceeds from issuance of common stock..........................    2,003,986           --
     Proceeds from issuance of preferred stock.......................      200,000      200,000
     Redemption of preferred stock...................................     (416,997)    (100,000)
     Proceeds from capitalized lease obligations.....................           --       17,844
     Payments of capitalized lease obligations.......................      (37,845)     (38,840)
     Proceeds from loans from stockholders...........................           --       20,000
     Payments of loans from stockholders.............................      (25,781)     (31,223)
     Payments of long-term debt......................................       (2,885)     (10,357)
                                                                        ----------    ---------
          Net cash provided by financing activities..................    1,720,478       57,424
                                                                        ----------    ---------
Net increase (decrease) in cash......................................      842,429     (218,922)
Cash and cash equivalents -- beginning of period.....................       53,703      240,261
                                                                        ----------    ---------
Cash and cash equivalents -- end of period...........................   $  896,132    $  21,339
                                                                         =========    =========
Supplemental information: Interest expense paid......................   $   22,856    $  21,640
                            Corporate income taxes paid..............   $        0    $       0
Supplemental schedule of non-cash investing and financing activities:
     Non-cash transactions consisted of the exchange of common stock
      for capital assets valued at $410,000 in 1996 and the sale of a
      Market Area for a non-interest bearing note with a present
      value of $213,819 in 1996.
</TABLE>
    
 
          The Accompanying Notes to Consolidated Financial Statements
              are an integral part of these financial statements.
 
                                      F-23
<PAGE>   71
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
        CONSOLIDATED STATEMENT OF COMMON STOCK, NON-REDEEMABLE PREFERRED
                      STOCK AND OTHER STOCKHOLDERS' EQUITY
                                  (UNAUDITED)
   
<TABLE>
<CAPTION>
                                                              FOR THE SIX MONTHS ENDED APRIL 30, 1996
                                   ---------------------------------------------------------------------------------------------
                                        COMMON STOCK              PREFERRED STOCK        ADDITIONAL
                                   -----------------------    -----------------------     PAID-IN       RETAINED
                                    SHARES        AMOUNT       SHARES        AMOUNT       CAPITAL       (DEFICIT)       TOTAL
                                   ---------    ----------    ---------    ----------    ----------    -----------    ----------
<S>                                <C>          <C>           <C>          <C>           <C>           <C>            <C>
Balance at October 31, 1995.....   1,891,300    $  876,150    1,639,500    $1,022,580     $365,000     $(2,311,903)   $  (48,173)
Six Months Ended April 30, 1996:
Conversion of preferred stock to
  common stock..................      70,000        70,000      (70,000)      (70,000)          --              --             0
Common stock issuance...........   1,773,900     2,413,986           --            --           --              --     2,413,986
Preferred stock issuance........          --            --      200,000       200,000           --              --       200,000
Preferred stock redemption......          --            --     (416,997)     (416,997)          --              --      (416,997)
Increase in carrying amount of
  redeemable preferred stock....          --            --     (160,000)     (342,540)    (365,000)             --      (707,540)
Net Loss........................          --            --           --            --           --        (752,954)     (752,954)
                                   ---------    ----------    ---------    ----------    ---------     -----------    ----------
Balance at April 30, 1996.......   3,735,200    $3,360,136    1,192,503    $  393,043     $      0     $(3,064,857)   $  688,322
                                   =========    ==========    =========    ==========    =========     ===========    ==========
 
<CAPTION>
                                                              FOR THE SIX MONTHS ENDED APRIL 30, 1995
                                   ---------------------------------------------------------------------------------------------
                                        COMMON STOCK              PREFERRED STOCK        ADDITIONAL
                                   -----------------------    -----------------------     PAID-IN       RETAINED
                                    SHARES        AMOUNT       SHARES        AMOUNT       CAPITAL       (DEFICIT)       TOTAL
                                   ---------    ----------    ---------    ----------    ----------    -----------    ----------
<S>                                <C>          <C>           <C>          <C>           <C>           <C>            <C>
Balance at October 31, 1994.....   2,711,300    $1,277,000      300,000    $   54,000     $365,000     $  (607,290)   $1,088,710
Six Months Ended April 30, 1995:
Conversion of common stock to
  preferred stock...............    (825,000)     (402,600)     825,000       402,600           --              --             0
Preferred stock issuance........          --            --      200,000       200,000           --              --       200,000
Preferred stock redemption......          --            --     (100,000)           --           --        (100,000)     (100,000)
Net Loss........................          --            --           --            --           --        (856,656)     (856,656)
                                   ---------    ----------    ---------    ----------    ----------    -----------    ----------
Balance at April 30, 1995.......   1,886,300    $  874,400    1,225,000    $  656,600     $365,000     $(1,563,946)   $  332,054
                                   =========    ==========    =========    ==========    =========     ===========    ==========
</TABLE>
    
 
          The Accompanying Notes to Consolidated Financial Statements
              are an integral part of these financial statements.
 
                                      F-24
<PAGE>   72
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
                                 APRIL 30, 1996
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
(a) BASIS OF PRESENTATION --
 
     The consolidated financial statements included herein have been prepared by
All American Food Group, Inc. and subsidiaries (the "Company"). In the opinion
of management, the information furnished reflects all adjustments necessary for
a fair presentation of the results for the reported interim periods. Results of
operations for interim periods are not necessarily indicative of results for the
full year.
 
(b) ORGANIZATION --
 
   
     The Company was incorporated under the name Jutland Food Group, Inc. on
September 27, 1993 under the laws of the State of New Jersey. On October 20,
1993, the Company acquired substantially all of the assets of Howberg Bakery
Equipment Co., Inc., Bagels of New Milford, Inc. and Goldberg's Famous Bagels of
Orangeburg, Inc., hereinafter referred to as the "Goldberg acquisition." The
assets acquired consisted of a bagel equipment business and two retail bagel
stores. On September 29, 1994, the Company acquired all of the outstanding stock
of four interrelated corporations all conducting business under the tradename
"Sammy's New York Bagels," hereinafter referred to as the "Sammy's acquisition."
The acquisition consisted of three certified kosher retail bagel stores and a
bagel production facility, all operating under rabbinical supervision. Both of
these acquisitions have been accounted for under the purchase method of
accounting in accordance with Accounting Principle Board Opinion No. 16.
Effective October 31, 1995 the company changed its fiscal year to October 31st.
The Company changed its name to All American Food Group, Inc. on October 24,
1995.
    
 
(c) BUSINESS --
 
     The Company is principally engaged in the development of a retail chain of
franchised bagel stores, including the operation of a certain number of
Company-owned stores for training and marketing and promotional activities, and
the distribution of bagel bakery equipment and related products to the franchise
system. The Company markets both single unit and market development franchise
agreements. The Company, in the normal course of business, also markets stores
it acquires to individuals who operate as franchisees. The Company franchises
its concepts under the names "Goldberg's Original Old World Bagels" and "Sammy's
New York Bagels."
 
     The Company no longer actively engages in the sales of bagel bakery
equipment to independent retail operators.
 
(d) PRINCIPLES OF CONSOLIDATION --
 
     The consolidated financial statements include the accounts of All American
Food Group, Inc. and its subsidiaries. All significant inter-company balances
and transactions have been eliminated in consolidation.
 
(e) CASH AND CASH EQUIVALENTS --
 
     At April 30, 1996 cash represented monies on deposit in financial
institutions.
 
(f) CONCENTRATION OF CREDIT RISK --
 
     The Company maintains cash and cash equivalents with various financial
institutions. Company policy is designed to limit exposure with any one
institution. Credit risk with respect to trade accounts and notes receivable is
minimal, due to the terms under which the Company transacts its business.
 
                                      F-25
<PAGE>   73
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
                                 APRIL 30, 1996
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(G) INVENTORIES --
 
     Inventories are stated at the lower of cost (first-in, first-out ("FIFO"))
or market.
 
(H) PROPERTY, PLANT AND EQUIPMENT --
 
     Equipment, fixtures and leasehold improvements are recorded at cost.
Equipment under capital leases is recorded at the net present value of the
associated lease payments. Major replacements or improvements are capitalized.
Maintenance and repairs are charged to earnings as incurred. For financial
statement purposes, depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the assets which range
from three to ten years.
 
(I) INTANGIBLE ASSETS --
 
     The values assigned to intangible assets are based on an independent
appraisal and management's estimates, and are being amortized on a straight-line
basis over their estimated useful lives, which range from three and one-half to
five years.
 
(J) ACQUISITION COSTS --
 
     Acquisition costs represent fees incurred in the Goldberg and Sammy's
acquisitions are being amortized over their useful lives of five years.
 
(K) VALUATION OF NON-CURRENT INVESTMENTS --
 
     The non-current portfolio of securities represented by the investment in
the common stock of Jutland Enterprises Inc. ("Enterprises") is carried at zero
value. Currently there is no market for the shares. Any gain realized from the
disposition of these securities will be recognized at the time of disposition.
 
(L) FRANCHISE REVENUE RECOGNITION --
 
   
     Franchise revenue includes the sale of single unit franchises, the sale of
Company-owned stores to franchisees, the sale of market development franchises
and ongoing royalty and advertising fees.
    
 
   
     Single unit franchise agreements ("Single Unit Agreements") provide for
payment of a nonrefundable initial franchise fee (an "Initial Franchise Fee"), a
weekly royalty on gross sales, and a weekly cooperative advertising fund
contribution. The Company's material obligations under the terms of all Single
Unit Agreements are assisting in site selection and franchisee training. Initial
Franchise Fees under Single Unit Agreements are recognized as revenues when the
Company has no further material obligations in respect of the establishment of
such franchise, which occurs upon the opening of the store. As of April 30,
1996, the Company had deferred recognition of Initial Franchise Fees relating to
two stores which management anticipates will open within the next year. See note
8.
    
 
   
     Market Development Agreements provide for the payment, by the Market
Developer, of a nonrefundable initial fee (a "Market Development Fee") based on
the size, population and overall market potential of the territory subject to
the Market Development Agreement (the "Market Area"). The Market Developer
assumes substantially all of the responsibilities that otherwise would be
assumed by the Company, as franchiser within the Market Area. In exchange, the
Market Developer receives (i) the exclusive right to
    
 
                                      F-26
<PAGE>   74
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
                                 APRIL 30, 1996
 
   
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
    
(l) FRANCHISE REVENUE RECOGNITION -- (CONTINUED)
   
build stores for the Market Developer's own account or to seek third party
franchisees within the Market Area and (ii) the right to share with the Company,
on a 50/50 basis, initial and ongoing single store fees within the Market Area.
Under Market Development Agreements, the Company's obligations in respect of the
development of single unit franchises within the Market Area are limited to (i)
approval of franchisees presented by the Market Developer and (ii) approval of
store sites. The Company has no further material obligations in respect of a
Market Development Agreement at the time of execution of the Agreement. Market
Development Fees paid in cash or by promissory notes fully collateralized by
liquid assets or as to which the Company has obtained an independent third-party
valuation, are recognized as revenues by the Company upon execution of the
Market Development Agreement and payment of the fee. In the absence of such
collateral or valuation, the Company recognizes Market Development Fees on a
cash basis as payments on such notes are received. The Company records
non-interest bearing notes with a term in excess of one year at a discount for
imputed interest thereon. As of April 30, 1996, the Company had deferred the
recognition of $262,989 of revenues relating to notes from Market Developers.
See notes 3 and 9.
    
 
   
     The Company's portion of the Initial Franchise Fee on single unit
franchises sold within a Market Developer's Market Area is recognized as
revenues when the Company has no further material obligations in respect of the
establishment of such franchise, which occurs upon opening of the store. As of
April 30, 1996, the Company had no deferred revenue relating to stores in Market
Developers' Market Areas.
    
 
   
     The Company recognizes revenues from the sale of Company-owned stores to
franchisees upon consummation of the sale transaction.
    
 
     The Company recognizes franchise royalty revenue when it is earned.
 
   
     Franchise revenue for the six months ended April 30, 1996 of $195,639
consists of initial non-recurring franchise and market development fees of
$22,500 and $153,700, respectively, and ongoing royalties of $19,439. No
franchise revenue was recognized during the six months ended April 30, 1995.
    
 
(m) NET LOSS PER SHARE --
 
     Net loss per common share was determined by dividing net loss, as adjusted,
by the weighted average number of common shares outstanding, as adjusted. The
net loss for the six months ended April 30, 1996 was adjusted by an increase of
$707,540 representing the increase in the carrying amount of redeemable
preferred stock. (See Note 11). The weighted average number of common shares
outstanding was adjusted by an increase of 1,891,070 shares for all periods
presented. These additional shares represent the number of shares and options
issued within the twelve months prior to May 3, 1996, when the Company filed a
registration statement for an initial public offering (IPO), that were issued
for consideration per share or at an exercise per share less than the
anticipated IPO price of $6.00 per share. The treasury stock method has been
used to determine the net increase in the number of shares outstanding. As such
the computation of fully diluted net loss per share was anti-dilutive in each of
the periods presented; therefore, the amounts reported for primary and fully
diluted loss are the same.
 
(n) LONG-LIVED ASSETS --
 
     The Company retroactively adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
effective February 1, 1994. The Company records
 
                                      F-27
<PAGE>   75
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
                                 APRIL 30, 1996
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(n) LONG-LIVED ASSETS -- (CONTINUED)
impairment losses on long-lived assets used in operations, including goodwill
and intangible assets, when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts of those assets. The adoption of
SFAS No. 121 had no material impact on the Company's financial condition or
results of operations for the six months ended April 30, 1996 and 1995.
 
(o) STOCK OPTIONS --
 
   
     The Company has granted stock options to an employee, a director, a key
vendor and a customer with an exercise price not less than fair market value per
share of common stock on the date the option was granted. The Company accounts
for stock option grants in accordance with APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and, accordingly, recognizes no compensation or other
expense for the stock option grants.
    
 
2. INVENTORIES:
 
     Inventories at April 30, consist of the following:
 
<TABLE>
<CAPTION>
                                                                     1996        1995
                                                                    -------    --------
        <S>                                                         <C>        <C>
        Food and paper products..................................   $39,872    $ 16,000
        Equipment and parts......................................    57,613     154,664
                                                                    -------    --------
        Total inventories........................................   $97,485    $170,664
                                                                    =======    ========
</TABLE>
 
   
3. NOTES RECEIVABLE:
    
 
   
     Notes receivable at April 30 1996, represent the present value of the
unpaid portion of the Market Development Fees due in connection with the sales
of Market Areas (including a sale to a shareholder of the Company).
    
 
   
     The notes, which are non-interest bearing and have been discounted based on
an imputed interest rate of 9%, are as follows:
    
 
   
<TABLE>
        <S>                                                                  <C>
        Note receivable, paid by the application of 50% of compensation
          due to Market Developer.........................................   $ 49,170
        Note receivable, due in quarterly installments of $20,000.........    213,819
                                                                             --------
                                                                              262,989
        Less current portion..............................................     69,846
                                                                             --------
        Note receivable, long-term........................................   $193,143
                                                                             ========
</TABLE>
    
 
                                      F-28
<PAGE>   76
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
                                 APRIL 30, 1996
 
   
4. FIXED ASSETS:
    
 
     Fixed assets and accumulated depreciation at April 30, consists of the
following:
 
<TABLE>
<CAPTION>
                                                                               ESTIMATED
                                                     1996         1995       USEFUL LIVES
                                                  ----------    ---------    -------------
        <S>                                       <C>           <C>          <C>
        Machinery and equipment -- retail
          stores...............................   $  492,973    $ 555,715          7 years
        Office furniture and warehouse
          equipment............................      171,500      140,876          7 years
        Trucks and delivery vehicle............       26,370       26,370     3 to 5 years
        Leasehold improvements -- retail
          stores...............................      233,931      152,497    Term of lease
        Construction in progress...............      181,828       --
                                                  ----------    ---------
                                                   1,106,602      875,458
        Accumulated depreciation...............     (197,426)    (162,868)
                                                  ----------    ---------
        Fixed assets net of accumulated
          depreciation.........................   $  909,176    $ 712,590
                                                   =========    =========
</TABLE>
 
     At April 30, 1996 certain debt is secured by approximately $259,000 of
fixed assets.
 
   
5. INTANGIBLE ASSETS:
    
 
     Intangible assets and accumulated amortization at April 30, are as
following:
 
<TABLE>
<CAPTION>
                                                                                 ESTIMATED
                                                        1996         1995       USEFUL LIVES
                                                      ---------    ---------    ------------
        <S>                                           <C>          <C>          <C>
        Kosher certification.......................   $ 145,771      157,771       5 years
        Non-compete agreements.....................     192,507      214,507       4 years
        Favorable lease agreement..................       6,250       22,500    3 1/2 years
        Customer lists.............................      74,432       93,434       4 years
        Proprietary formula........................     107,338      121,338       5 years
        Retail store license.......................      --           27,000    9 1/2 years
        Drawings and blueprints....................      46,158       52,158       5 years
                                                      ---------    ---------
        Total intangible assets....................     572,456      688,708
        Accumulated amortization...................    (294,522)    (165,254)
                                                      ---------    ---------
        Total intangible assets, net...............   $ 277,934    $ 523,454
                                                      =========    =========
</TABLE>
 
   
6. ACQUISITION COSTS:
    
 
     Acquisition costs represent fees incurred in consummating the Goldberg's
and Sammy's acquisitions. These costs are being amortized over an estimated
useful life of five years. Acquisition costs and accumulated amortization at
April 30, are as follows:
 
<TABLE>
<CAPTION>
                                                                     1996        1995
                                                                   --------    --------
        <S>                                                        <C>         <C>
        Acquisition costs.......................................   $105,751    $105,751
        Accumulated amortization................................    (50,899)    (29,744)
                                                                   --------    --------
        Net acquisition costs...................................   $ 54,852    $ 76,007
                                                                   ========    ========
</TABLE>
 
                                      F-29
<PAGE>   77
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
                                 APRIL 30, 1996
 
   
7. INVESTMENT IN JUTLAND ENTERPRISES INC. COMMON STOCK:
    
 
     As part of its initial capitalization, the Company acquired 400,000 shares
of Enterprises common stock from Andrew Thorburn, the Chief Executive Officer of
Enterprises and subsequently the Chief Executive Officer of the Company.
Consistent with the transferor's cost basis, this stock has been assigned no
value by the Company.
 
     The Company received 340,000 additional shares of Enterprises in separate
transaction involving Blue Chip Computerware, Inc., and in the re-negotiations
with Howard Goldberg. Due to the absence of a readily ascertainable market value
no value has been assigned to these shares.
 
   
8. DEFERRED FRANCHISING REVENUE:
    
 
   
     Deferred franchising revenue at April 30, 1996, represents Initial
Franchise Fees received in connection with single store franchises where the
stores have not yet opened and the present value of the portion of the Market
Development Fee paid by means of non-interest bearing notes as to which the
Company has not as yet recognized revenue, and are as follows:
    
 
   
<TABLE>
        <S>                                                                  <C>
        Single store Initial Franchise Fees received, stores not yet
          open............................................................   $ 40,000
        Market Development Fees...........................................    262,989
                                                                             --------
                                                                              302,989
        Less current portion..............................................    109,846
                                                                             --------
        Deferred franchising revenue, long-term...........................   $193,143
                                                                             ========
</TABLE>
    
 
   
9. EQUIPMENT LEASE OBLIGATIONS:
    
 
     The Company and its subsidiaries are obligated under various equipment
lease arrangements which have been capitalized in the accompanying financial
statements. Property, plant, and equipment presented on the consolidated balance
sheet includes approximately $259,000 of assets capitalized under these leasing
arrangements. Accumulated depreciation recorded on these assets approximated
$65,000 at April 30, 1996. These lease obligations are due in monthly
installments including interest expense at annual interest rates ranging from
8.3% to 24.5%. The lease obligations are payable through dates ranging from June
1996 through November 1999.
 
     The future minimum payments required under the lease arrangements with
their present value at April 30, 1996 are as follows:
 
<TABLE>
<CAPTION>
                                                          PRESENT     INTEREST   MINIMUM
                     YEAR ENDED APRIL 30,                  VALUE      EXPENSE    PAYMENTS
        -----------------------------------------------   --------    -------    --------
        <S>                                               <C>         <C>        <C>
               1997....................................   $ 73,377    $13,988    $ 87,365
               1998....................................     40,308      5,173      45,481
               1999....................................      8,625        368       8,993
                                                          --------    -------    --------
                                                          $122,310    $19,529    $141,839
                                                          ========    =======    ========
</TABLE>
 
                                      F-30
<PAGE>   78
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
                                 APRIL 30, 1996
 
   
10. LOANS FROM STOCKHOLDERS:
    
 
     Loans from stockholders primarily consist of obligations assumed in the
Sammy's acquisition. These loans are due in monthly installments including
interest expense at annual rates ranging from 5.0% to 16.76%. The loans are
payable through dates ranging from June 1996 through February 1999.
 
     The future minimum payments required under the loans, with their present
value at April 30, 1996, are as follows:
 
<TABLE>
<CAPTION>
                                                             PRESENT    INTEREST   MINIMUM
                       YEAR ENDED APRIL 30,                   VALUE     EXPENSE    PAYMENTS
        --------------------------------------------------   -------    -------    -------
        <S>                                                  <C>        <C>        <C>
               1997.......................................   $14,425    $1,083     $15,508
               1999.......................................     5,433       303       5,736
               1998.......................................     3,451        79       3,530
                                                             -------    -------    -------
                                                             $23,309    $1,465     $24,774
                                                             =======    ======     =======
</TABLE>
 
   
11. LONG-TERM DEBT:
    
 
     Long-term debt at April 30, is summarized as follows:
 
<TABLE>
<CAPTION>
                                                                       1996      1995
                                                                      ------    -------
        <S>                                                           <C>       <C>
        Note payable to Tilden Financial Corporation payable in
          monthly installments of $1,521 including interest,
          through October 1995, secured by equipment...............   $ --      $ 9,030
        Note payable to bank payable in monthly installments of
          $405 plus interest at 1.5% above the prime rate, through
          February 1997, secured by equipment......................    3,532      8,098
        Note payable to individual in monthly installments of $153
          including interest at the annual rate of 12.5%, payable
          through September 1996...................................    1,214      --
                                                                      ------    -------
                                                                       4,746     17,128
        Less current portion.......................................    4,746     13,254
                                                                      ------    -------
        Long-term debt.............................................   $ --      $ 3,874
                                                                      ======    =======
</TABLE>
 
   
12. INCOME TAXES:
    
 
     The Company has adopted SFAS No. 109 and is a C Corporation subject to
federal and state income taxes. The Company has changed its fiscal year end to
October 31 for tax purposes. At April 30, 1996, there were consolidated net
operating loss carryforwards of approximately $750,000 and $397,000 expiring in
2010 and 2011, respectively. Due to the current period operating loss, no amount
has been provided for corporate income taxes.
 
     In accordance with SFAS No. 109, the difference between the tax bases and
the assigned value of the assets for financial reporting purposes of
approximately $525,000 resulting from the Goldberg and Sammy's acquisitions will
not result in taxable or deductible amounts in future years, and no deferred
asset or liability has been recognized because of the magnitude of the net
operating loss carryforward. In the event the
 
                                      F-31
<PAGE>   79
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
                                 APRIL 30, 1996
 
   
12. INCOME TAXES -- (CONTINUED)
    
Company generates taxable income in excess of the net operating loss
carryforward, a deferred tax liability will be recognized.
 
   
13. REDEEMABLE AND NON-REDEEMABLE PREFERRED CONVERTIBLE PREFERRED STOCK:
    
 
     The Company issued 190,000 shares of Series A and 180,000 shares of Series
B Convertible Preferred Stock in connection with the Goldberg's and Sammy's
acquisitions, respectively. The Certificate of Designation stipulates that
certain of these shares are redeemable if certain events occur as follows:
 
  Series A Shares:
 
     In the event that the Company completes an underwritten initial public
offering of its common stock yielding net proceeds to the Company (after
deduction of offering costs, commissions, attorneys fees, or other costs and
expenses in connection with such offering) of more than $2,000,000, then within
30 days following the closing of such offering, the Company will offer to redeem
the lesser of 40,000 shares or the number of shares of Series A Preferred Stock
then outstanding, at a redemption price of $5.00 per share. The holder of Series
A Preferred Stock can accept the offer or can convert the shares held into an
equal number of shares of common stock of the Company.
 
  Series B Shares:
 
     In the event that the Company completes, in a single transaction, a capital
infusion of more than $1,000,000 (net of any offering costs, commissions,
attorneys fees, or other costs and expenses in connection with such equity
infusion), then within 30 days following the closing of such offering, the
Company shall offer to redeem the lesser of 60,000 shares or the number of
shares of Series B Preferred Stock then outstanding, at a redemption price of
$5.00 per share. The holder of Series B Preferred Stock can accept the offer or
can convert the shares held into an equal number of shares of the common stock
of the Company.
 
     In the event that the Company completes an underwritten initial public
offering of its common stock and any shares of Series B Preferred Stock remain
outstanding 24 months following the effective date of the registration statement
filed with the Securities and Exchange Commission in respect of such initial
public offering, then within 3 days following the expiration of such 24 month
period, the Company shall offer to redeem the lesser of 60,000 shares, or the
number of shares of Series B Preferred Stock then outstanding, at a redemption
price of $5.00 per share. The holder of Series B Preferred Stock can accept the
offer or can convert the shares held into an equal number of shares of the
common stock of the Company.
 
   
     At April 30, 1996 the present value of the amount necessary to redeem the
maximum number of shares of Series A and Series B Convertible Preferred Stock
has been reflected in the accompanying consolidated financial statements as
Redeemable Preferred Stock, Series A and Series B. In the calculation of these
amounts, it has been assumed the Company will complete its initial public
offering on August 31, 1996.
    
 
   
     The following presents the previous carrying amounts of the Series A and
Series B Preferred Stock, the carrying amount at April 30, 1996, the accretion
(increase in the carrying amount) for the six months ended
    
 
                                      F-32
<PAGE>   80
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
                                 APRIL 30, 1996
 
   
13. REDEEMABLE AND NON-REDEEMABLE PREFERRED CONVERTIBLE PREFERRED
STOCK -- (CONTINUED)
    
  Series B Shares -- (continued)
April 30, 1996 and the redemption amounts for the preferred shares. At April 30,
1996, the accretion created a charge to paid in capital of $365,000 and a charge
to non-redeemable preferred stock of $342,540.
 
<TABLE>
<CAPTION>
                                                                             ACCRETION FOR
                                                         CARRYING AMOUNT          THE
                                    CARRYING AMOUNT       AT APRIL 30,      SIX MONTHS ENDED    REDEMPTION
                                  AT OCTOBER 31, 1995         1996           APRIL 30, 1996       AMOUNT
                                  -------------------    ---------------    ----------------    ----------
    <S>                           <C>                    <C>                <C>                 <C>
    Series A...................         $54,000             $ 192,196           $192,196         $200,000
    Series B...................             -0-             $ 515,344           $515,344         $600,000
                                     ----------          ------------       ------------         -------- 
                                        $54,000             $ 707,540           $707,540         $800,000
                                     ===========         ============       ============         ========
</TABLE>
 
     The maturity schedule of the redemptions is as follows:
 
<TABLE>
<CAPTION>
                               YEAR ENDED APRIL 30,                           AMOUNT
        ------------------------------------------------------------------   --------
        <S>                                                                  <C>
               1997.......................................................   $500,000
               1999.......................................................    300,000
                                                                             --------
                                                                              800,000
               Less deferred interest.....................................     92,460
                                                                             --------
               Carrying amount at April 30, 1996..........................   $707,540
                                                                             ========
</TABLE>
 
  Series C Preferred Stock:
 
     The Company has also issued a total of 982,503 shares of Series C
Non-redeemable Convertible Preferred stock in a series of transactions. The
Certificate of Designation for this series provides that the Company may, at its
sole option, redeem all or part of the stock for $5.00 a share, subject to the
holder's election to convert the shares into an equal number of common shares of
the Company. The shares have no conditions under which the Company must redeem
all or portion of theses shares.
 
     As discussed in Note 12, Related Party Transactions, the Company agreed to
a voluntary redemption of 416,997 shares of this stock during the six months
ended April 30, 1996. The Company does not intend to voluntarily redeem any
additional shares of non-redeemable preferred stock.
 
   
14. RELATED PARTY TRANSACTIONS:
    
 
     As described above, during the six months ended April 30, 1996 the Company
voluntarily redeemed 416,997 shares of Series C Preferred Stock. Of this total
401,997 shares were redeemed from an affiliate, Blue Chip Computerware, Inc.,
for consideration of $1.00 per share, equivalent to the price Blue Chip paid to
acquire the shares. This was done in connection with the financial
reorganization of Blue Chip.
 
   
15. STOCK OPTIONS:
    
 
   
     The Company has granted options to purchase 240,000 shares of the Company's
common stock, consisting of 80,000 options granted to a key vendor, 50,000
options granted to a director, 10,000 options granted to a customer and 100,000
options granted to the Company's Chief Financial Officer. The options are
    
 
                                      F-33
<PAGE>   81
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
                                 APRIL 30, 1996
 
   
15. STOCK OPTION -- (CONTINUED)
    
exercisable at prices ranging from $.50 to $1.00 per share and expire five years
after they were issued on dates ranging from January 31, 2000 through January
31, 2001.
 
     The options are exercisable at any time during the period they are
outstanding. The following summarized the activity during the periods presented.
 
<TABLE>
<CAPTION>
                                                                           OPTION PRICE
                                                              SHARES        PER SHARE
                                                              -------    ----------------
        <S>                                                   <C>        <C>
        Options outstanding at February 1, 1995............      None
             Granted.......................................    30,000         $0.50
                                                              -------
        Options outstanding at April 30, 1995..............    30,000         $0.50
             Granted.......................................    50,000         $1.00
                                                              -------
        Options outstanding at October 31, 1995............    80,000     $0.50 to $1.00
             Granted.......................................   160,000         $1.00
                                                              -------
        Options outstanding at April 30, 1996..............   240,000     $0.50 to $1.00
                                                              =======
</TABLE>
 
   
16. COMMITMENTS AND CONTINGENCIES:
    
 
(a) SAMMY'S FRANCHISING FEES --
 
     During the first sixty months after the Sammy's acquisition, the former
shareholders of the sellers are entitled to receive monthly payments equal to
10% of the single unit franchising fees paid to the Company, and during the
first twelve months after the acquisition and 20% of the fees collected on
international licensing or franchising. At April 30, 1996 there was no
outstanding liability under this provision.
 
(b) LEASES --
 
     The Company rents real and personal property under various non-cancelable
leases expiring at various dates through 2003. Certain of the leases include
renewal options and provisions for additional rental payments based on various
formulas such as cost of living adjustments, real estate tax and operating
expense escalations and escalations based on gross revenues. Total rent expense
charged to operations approximated $114,000 and $111,000 for the six months
ended April 30, 1996 and 1995, respectively. These amounts included contingent
rental expense of approximately $6,000 and $3,000, respectively.
 
     Minimum annual rental commitments under leases in effect at April 30, 1996
are summarized as follows:
 
<TABLE>
<CAPTION>
                                                                                EQUIPMENT
                         YEAR ENDED APRIL 30,                    REAL ESTATE     & OTHER
        ------------------------------------------------------   -----------    ---------
        <S>                                                      <C>            <C>
               1997...........................................   $   186,000     $10,000
               1998...........................................       171,000       --
               1999...........................................       160,000       --
               2000...........................................       156,000       --
               2001...........................................       119,000       --
               Later years....................................       521,000       --
                                                                 -----------    --------
               Total minimum lease payments...................   $ 1,313,000     $10,000
                                                                 ===========    ========
</TABLE>
 
                                      F-34
<PAGE>   82
 
       ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.)
                                AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
                                 APRIL 30, 1996
 
16. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
(C) EMPLOYMENT AGREEMENTS --
 
     The Company entered into employment contracts with the three principal
former shareholders of Sammy's as part of the acquisition. The employment
contracts provide for annual salaries through December 31, 1996 and include
non-compete covenants through December 31, 1998. The Company's aggregate
obligation for future payments under these agreements was $135,000 at April 30,
1996.
 
   
     The total compensation expense under these agreements for the six months
ended April 30, 1996 and for the six months ended April 30, 1995 was $113,568
and such amounts have been reflected as acquisition costs on the accompanying
Statement of Operations.
    
 
   
17. PRIVATE PLACEMENTS:
    
 
     During the six months ended April 30, 1996, the Company completed private
placements (the "Private Placements") of its common stock pursuant to which it
received an aggregate of $2,413,986, net of expenses of $48,514. Included in the
proceeds was property consisting of two retail bagel stores in the final stages
of construction, valued at $410,000. The proceeds from the Private Placements to
date have been used to (i) fund the Company's operations; (ii) the voluntary
redemption of shares of the Company's Preferred Stock; (iii) reduce trade
payables; and (iv) acquire capital assets. The Company intends to apply the
remainder of these proceeds for working capital purposes.
 
   
18. SUBSEQUENT EVENTS:
    
 
   
(A) REGISTRATION STATEMENT --
    
 
     On May 3, 1996, the Company filed a registration statement in connection
with an initial public offering of its common stock with the Securities and
Exchange Commission. The contemplated offering consists of 600,000 shares to be
sold at an initial price of $6.00 a share, through a firm commitment
underwriting by Alexander Wescott & Co., Inc.
 
   
(B) SETTLEMENT AGREEMENT --
    
 
   
     On August 12, 1996, the Company entered into a Modification and Settlement
Agreement pursuant to which, among other things, Mr. Goldberg agreed to convert
65,000 shares of his Series A Preferred Stock to an equal number of shares of
Common Stock and to redeem his remaining 115,000 Series A Preferred shares.
    
 
                                      F-35
<PAGE>   83
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
     NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, BY ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER,
SOLICITATION OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE OF THE PROSPECTUS.
 
                            ------------------------
 
                               TABLE OF CONTENTS
 
   
<TABLE>
<CAPTION>
                                         PAGE
                                         ----
<S>                                      <C>
Prospectus Summary....................     3
Risk Factors..........................     7
Dilution..............................    13
Use of Proceeds.......................    14
Capitalization........................    15
Dividend Policy.......................    15
Selected Financial Data...............    16
Management's Discussion and Analysis
  or Plan of Operation................    17
Business..............................    21
Management............................    34
Certain Transactions..................    38
Principal Shareholders................    39
Description of Securities.............    40
Shares Eligible for Future Sale.......    41
Underwriting..........................    42
Concurrent Offering...................    44
Legal Matters.........................    44
Experts...............................    44
Additional Information................    44
Index to Financial Statements.........   F-1
</TABLE>
    
 
                            ------------------------
 
     Until        , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
 
                                 600,000 SHARES
 
                         ALL AMERICAN FOOD GROUP, INC.
 
                                  COMMON STOCK
                            ------------------------
 
                                   PROSPECTUS
                            ------------------------
                         ALEXANDER, WESCOTT & CO., INC.
 
                                          , 1996
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>   84
 
     INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
     REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
     SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
     MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
     BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
     THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
     SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
     UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
     OF ANY SUCH STATE.
 
   
                  SUBJECT TO COMPLETION, DATED AUGUST 20, 1996
    
 
ALTERNATIVE PROSPECTUS
 
                                1,773,900 SHARES
 
                         ALL AMERICAN FOOD GROUP, INC.
 
                                  COMMON STOCK
 
                            ------------------------
 
     This Prospectus relates to 1,773,900 shares of the Common Stock, no par
value, of All American Food Group, Inc., a New Jersey corporation (the
"Company"), issued to the holders thereof in private placements by the Company.
The shares of Common Stock referred to above are sometimes referred to herein as
the "Selling Securityholder Securities" and the holders thereof as the "Selling
Securityholders."
 
     The securities offered by the Selling Securityholders pursuant to this
Prospectus may be sold from time to time by the Selling Securityholders or by
their transferees. The distribution of the securities offered hereby by the
Selling Securityholders may be effected in one or more transactions that may
take place on the over-the-counter market, including ordinary brokers'
transactions, privately negotiated transactions or through sales to one or more
dealers for resale of such securities as principals, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the Selling Securityholders.
 
     The Selling Securityholders, and intermediaries through whom such
securities are sold, may be deemed underwriters within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation. The Company has agreed to indemnify the
Selling Securityholders against certain liabilities, including liabilities under
the Securities Act.
 
     On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering by the Company
(the "Offering") of 600,000 shares of Common Stock, through Alexander, Westcott
& Co., Inc. (the "Underwriter"), was declared effective by the Securities and
Exchange Commission (the "Commission"). The Company will receive approximately
$2,940,000 in net proceeds from the Offering (assuming no exercise of the
Underwriter's over-allotment option) after payment of underwriting discounts and
commissions and estimated expenses of the Offering. The Company will not receive
any proceeds from the sale of Selling Securityholder Securities by the Selling
Securityholders.
 
                            ------------------------
 
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE
  OF RISK AND SUBSTANTIAL DILUTION. INVESTMENT IN THESE SECURITIES SHOULD
     BE MADE ONLY BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
      INVESTMENT. POTENTIAL PURCHASERS SHOULD CAREFULLY CONSIDER THE
        MATTERS SET FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE 7.
 
                            ------------------------
 
    THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
         AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
          ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
                     TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
                  The date of this Prospectus is        , 1996
<PAGE>   85
 
                            SELLING SECURITYHOLDERS
 
     An aggregate of up to 1,773,900 shares of Common Stock may be offered for
resale by the Selling Securityholders.
 
   
     The following table sets forth certain information with respect to each
Selling Securityholder for whom the Company is registering Common Stock for
resale to the public. Each of the Selling Securityholders is offering for sale
all of the Common Stock beneficially owned thereby, except that John W.
Chitvanni (a director of the Company) will retain ownership of 465 shares of
Common Stock and currently exercisable options (expiring November 1, 2000) to
purchase 50,000 shares of Common Stock, representing, in the aggregate,
approximately 1.16% of the aggregate number of shares of Common Stock
outstanding immediately subsequent to the Offering. The Company will not receive
any of the proceeds from the sale of Common Stock by the Selling
Securityholders.
    
 
   
     Except as indicated, there are no material relationships between any of the
Selling Securityholders and the Company or any of its predecessors or
affiliates, nor have any such material relationships existed within the past
three years.
    
 
   
<TABLE>
<CAPTION>
                                                                             NUMBER OF SHARES
                                                                                    OF
                                                                            COMMON STOCK OWNED
                                                                            AND MAXIMUM NUMBER
                         SELLING SECURITYHOLDERS                                TO BE SOLD
- -------------------------------------------------------------------------   ------------------
<S>                                                                         <C>
Alexander Wollman........................................................           1,000
Allan I. Grossman........................................................           1,000
Andrew and Denise Halpern................................................           3,000
Andrew Chitvanni(1)......................................................           3,000
Andrew Lefkowitz.........................................................           5,000
Angela Rundell...........................................................          10,000
Anita R. Fuller..........................................................          50,000
Ann and Gary Stanford(1).................................................           2,000
Ann Caputo...............................................................         100,000
Anthony and Ellen Goneconti..............................................           2,400
Anthony G. Foster(2).....................................................          10,000
Associates in Internal Medicine, Richard E. Handelsman MD, trustee.......           5,000
Austin Depalma...........................................................           2,000
Barbara Levitt Astrowsky.................................................           1,000
Bernard Karmel & Judith M. Gardner (JTWROS)..............................           1,000
Bernhardt Karp...........................................................           2,500
Cal A. Massaro...........................................................           5,000
Carl Anthony Massaro Sr..................................................           5,000
Carla Massaro and Jodi Schaschl..........................................           5,000
Catherine Bross..........................................................           8,000
Charles Glassman, MD.....................................................           2,000
Charles Mayer............................................................           4,000
Christopher W. Eni.......................................................          11,500
Cindy Eni Yingling.......................................................          11,500
Craig Nice...............................................................          18,750
Dan Cortigiano...........................................................           7,000
David and Lorraine Kiornblatt............................................           4,800
David and Marlene E. Dal Santo...........................................          15,000
Dee Fornaro..............................................................           1,800
Dietz & Watson Inc. Union Employee Pension Plan..........................           6,000
Dietz & Watson Inc. Pension Plan.........................................          11,500
Dr. Richard Saffran......................................................           5,000
Edward and Therese Malone................................................           4,800
Eleonore L. Giacchino and George E. Giacchino............................           9,000
Eleven Congers Inc.(3)...................................................          91,100
Elliot Leffel............................................................           3,000
</TABLE>
    
 
                                       A-2
<PAGE>   86
 
   
<TABLE>
<CAPTION>
                                                                             NUMBER OF SHARES
                                                                                    OF
                                                                            COMMON STOCK OWNED
                                                                            AND MAXIMUM NUMBER
                         SELLING SECURITYHOLDERS                                TO BE SOLD
- -------------------------------------------------------------------------   ------------------
<S>                                                                         <C>
Eugene Chitvanni(1)......................................................          61,000
Frank Tarantino..........................................................           3,000
George Muraski...........................................................           1,000
George Watson............................................................           2,500
Gerald A. Bardeson.......................................................          10,000
Gerald Gedney............................................................           5,000
Glenn and Merilag Mendoza................................................           2,000
Gregory S. Vojonvic......................................................           8,500
Guy McNeil(2)............................................................          10,000
Harold Greenberg.........................................................          25,000
Helen A. Pappas..........................................................          10,000
Helga Wollman............................................................           1,000
Henry Bareket............................................................           2,000
Herbert L. and Francine Wilson...........................................           5,000
Markan Associates........................................................          18,000
Howard Paul Cagen........................................................           2,500
Irvin R. Goldstein.......................................................           2,500
James A. Ashbaugh........................................................           2,000
James B. Yates...........................................................         150,000
James L. Benjamin........................................................           5,000
Jay S. Youngerman........................................................           5,000
Jeanne E. Harvey.........................................................           1,250
Joan H. Facelle M.D. Money Purchase Plan DTD 10-7-89.....................           8,000
Joan H. Facelle FBO Joan H. Facelle IRA..................................          15,000
Joan Kalish..............................................................           5,000
John Fitzpatrick, MD.....................................................           1,000
John Mocio...............................................................           1,000
John Mocio, Jr...........................................................             500
John W. and Valerie A. Chitvanni(2)......................................          10,000
Joseph A. and Sonia E. Conti(3)..........................................          10,000
Joseph Zampella..........................................................         100,000
Kenneth L. Terminini and Diane P. Cowell.................................           1,000
Kenneth S. Kopchik.......................................................           2,500
Klarberg Raiola and Associates...........................................           5,000
Larry Laimo..............................................................          28,040
Lee Purser...............................................................           5,000
Lisker Group(4)..........................................................          71,250
Louis J. Eni.............................................................          11,500
Louis Starace............................................................           3,000
Lynette S. Bardeson......................................................          10,000
M&A Investment Partnership...............................................          10,000
Marc and Jodi Weintraub..................................................           5,000
Maria Tina Ursini(5).....................................................          13,000
Mario Caputo.............................................................         100,000
Mark Albahary............................................................           4,000
Mark J. Meagher..........................................................          10,000
Mary Anne Riordan........................................................          10,000
Michael Brennock.........................................................          47,400
Michael Innerfield MD....................................................           4,800
Michael J. and Adeline Brennock..........................................         100,000
Michael J. Bellich.......................................................           1,200
Myrna Mirow..............................................................          12,500
Napoli Assurance Co......................................................          15,000
Nelli and Illya Rabukhin(6)..............................................           1,000
</TABLE>
    
 
                                       A-3
<PAGE>   87
 
   
<TABLE>
<CAPTION>
                                                                             NUMBER OF SHARES
                                                                                    OF
                                                                            COMMON STOCK OWNED
                                                                            AND MAXIMUM NUMBER
                         SELLING SECURITYHOLDERS                                TO BE SOLD
- -------------------------------------------------------------------------   ------------------
<S>                                                                         <C>
Nickolas Farese..........................................................           1,000
Pamela D. and Thomas J. Chiatroni(7).....................................           1,000
Patricia and Raymond Pistey Sr...........................................           3,900
Patricia M. Gedney.......................................................           5,000
Ramapo Valley Surgical Assoc. Retirement Trust DTD 10-1-89 FBO Bobb
  Vladeck................................................................           4,000
Ramapo Valley Surgical Assoc. Retirement Trust DTD 10-1-89 FBO Thomas L.
  Facelle IRA............................................................          20,000
Regina and Joseph Matties................................................           1,000
Richard Bellich..........................................................           5,000
Rick Stockton............................................................           5,000
Riry Muhlrad.............................................................           4,800
Robert and Janice Rosenberg..............................................           5,000
Robert E. Riodan and Francis A. Carille..................................          25,000
Robert Goldberg, MD......................................................           4,000
Rosemary Mocio...........................................................          32,035
Charles Rosenberg........................................................          12,500
Ruth Dietz Eni...........................................................          11,500
Sandra K. and Gerald D. Bardeson.........................................          20,000
Sandra Silvia............................................................         100,000
Scott Minuto.............................................................           2,000
Sheila E. Stein(6).......................................................          10,000
Stephen and Lauri Hill...................................................           1,200
Steven and Janine Kolinsky...............................................           2,925
Steven Kolinsky and Stephen Hill.........................................          10,000
Sushi Bhardwaj...........................................................           2,000
Terri Shechtman..........................................................          25,000
The Restoration Group....................................................          15,250
Thomas F. and Carolyn L. O'Rourke........................................           3,000
Thomas L. Bumgardner.....................................................           7,000
Thomas L. Facelle Trustee FBO Thomas L. Facelle IRA......................          15,000
Thomas L. Facelle, MD....................................................           9,500
Thomas W. Bardeson.......................................................          10,000
Timothy E. Hibsman.......................................................          11,700
Timothy J. Riordan and Sheila O'Neill Riordan............................           5,000
Victor D'Albora..........................................................           1,000
</TABLE>
    
 
- ---------------
   
(1) Child of a director of the Company.
    
   
(2) Director or executive officer of the Company.
    
   
(3) Franchisee of the Company.
    
   
(4) Affiliate of an individual listed among "Key Personnel" of the Company.
    
   
(5) Mother-in-law of an executive officer of the Company.
    
   
(6) Employee of the Company.
    
   
(7) Sister of an executive officer of the Company.
    
 
                                       A-4
<PAGE>   88
 
                              PLAN OF DISTRIBUTION
 
     The sale of the Selling Securityholder Securities by the Selling
Securityholders may be effected from time to time in transactions (which may
include block transactions by or for the account of the Selling Securityholders)
in the over-the-counter market or in negotiated transactions, through the
writing of options on the securities, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale or at negotiated prices.
 
     The Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders or the purchasers
for whom such broker-dealers may act as agents or to whom they may sell as
principals or otherwise (which compensation as to a particular broker-dealer may
exceed customary commissions).
 
   
     The Selling Securityholders holding shares of Common Stock who are not
officers or directors of the Company have agreed not to sell, assign,
hypothecate or otherwise transfer any such shares for a period of six months
following completion of the underwritten public offering. The officers and
directors of the Company have agreed not to, directly or indirectly, sell, offer
to sell, grant an option for the sale of, transfer, assign, pledge, hypothecate
or otherwise encumber any shares of the Company's Common Stock currently held
thereby for a period of 13 months following completion of the underwritten
public offering.
    
 
     The Selling Securityholders and broker-dealers, if any, acting in
connection with such sale might be deemed to be underwriters within the meaning
of Section 2(11) of the Securities Act and any commission received by them and
any profit on the resale of the securities might be deemed to be underwriting
discounts and commissions under the Securities Act.
 
                           CONCURRENT PUBLIC OFFERING
 
     On the date of this Prospectus, a Registration Statement was declared
effective under the Securities Act with respect to an underwritten offering by
the Company of 600,000 shares of Common Stock and up to 90,000 additional shares
of Common Stock to cover over-allotments, if any.
 
                                       A-5
<PAGE>   89
 
                                [ALTERNATE PAGE]
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
     NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY
OFFER TO BUY, ANY SECURITIES OFFERED HEREBY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER, OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN CONTAINED IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
 
                            ------------------------
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                         PAGE
                                         ----
<S>                                      <C>
Prospectus Summary....................      3
Risk Factors..........................      7
Dividend Policy.......................     15
Selected Financial Data...............     16
Management's Discussion and Analysis
  or Plan of Operation................     17
Business..............................     19
Management............................     30
Certain Transactions..................     34
Description of Securities.............     36
Principal Shareholders................
Shares Eligible for Future Sale.......     37
Selling Securityholders...............
Plan of Distribution..................
Concurrent Public Offering............
Legal Matters.........................     40
Experts...............................     40
Additional Information................     40
Index to Financial Statements.........    F-1
</TABLE>
 
                                1,773,900 SHARES
 
                               ALL AMERICAN FOOD
                                  GROUP, INC.
 
                                  COMMON STOCK
                            ------------------------
 
                                   PROSPECTUS
                            ------------------------
 
                                        , 1996
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

 
                                       A-6
<PAGE>   90
 
                         ALL AMERICAN FOOD GROUP, INC.
 
                                    PART II.
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 24.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
     Section 14A:3-5 of the New Jersey Business Corporation Act (the "NJBCA")
gives the Company power to indemnify each of its directors and officers against
expenses and liabilities in connection with any proceedings involving him by
reason of his being or having been a director or officer if (a) he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the Company and (b) with respect to any criminal proceeding,
he had no reasonable cause to believe his conduct was unlawful. However, in a
proceeding by or in the right of the Company, there shall be no indemnification
in respect of any liabilities or expenses if the officer or director shall have
been adjudged liable to the Company unless the court in such proceeding
determines he is entitled to indemnification for such liabilities and/or
expenses. Furthermore, no indemnification shall be made to or on behalf of a
director or officer if a judgment or other final adjudication adverse to such
director or officer establishes that his acts or omissions (a) were in breach of
his duty of loyalty to the Company and its stockholders, (b) were not in good
faith or involved a knowing violation of law or (c) resulted in receipt by the
director or officer of an improper personal benefit. The NJBCA defines an act or
omission in breach of a person's duty of loyalty as an act or omission which
that person knows or believes to be contrary to the best interests of the
Company or its stockholders in connection with a matter in which he has a
material conflict of interest. If a director or officer is successful in a
proceeding, the statute mandates that the Company indemnify him against
expenses.
 
     The Company's Restated Certificate of Incorporation, as permitted by New
Jersey law, eliminates the personal liability of the directors and officers to
the Company or its shareholders for monetary damages for breaches of such
director's or officer's duty of care or other duties as a director or officer;
except liabilities for any breach of duty based upon an act or omission (a) in
breach of such person's duty of loyalty to the corporation or its shareholders,
(b) not in good faith or involving a knowing violation of law or (c) resulting
in receipt by such person of an improper personal benefit. This limitation on
liability could have the effect of limiting directors' and officers' liability
for violations of the federal securities laws. In addition, the Company's
Restated Certificate of Incorporation and Restated By-Laws provide broad
indemnification rights to directors and officers so long as the director or
officer acted in a manner believed in good faith to be in or not opposed to the
best interest of the Company and with respect to criminal proceedings if the
director had no reasonable cause to believe his or her conduct was unlawful. The
Company believes that the protection provided by these provisions will help the
Company attract and retain qualified individuals to service as officers and
directors. These provisions would provide indemnification for liabilities
arising under the federal securities laws to the extent that such
indemnification is found to be enforceable under, and to be in accordance with,
applicable law and generally will limit the remedies available to a shareholder
who is dissatisfied with a Board decision protected by these provisions, and
such shareholder's only remedy may be to bring a suit to prevent the Board's
action.
 
                                      II-1
<PAGE>   91
 
ITEM 25.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
     The following expenses will be incurred in connection with the proposed
offering hereunder. All of such expenses will be borne by the Company. With the
exception of the registration fees, all amounts shown are estimates:
 
<TABLE>
<S>                                                                               <C>
SEC registration fees..........................................................   $  5,227.15
NASD registration fee..........................................................      2,016.00
Legal fees and expenses........................................................     50,000.00
Underwriter's nonaccountable expense allowance.................................    108,000.00
Accounting fees and expenses...................................................     40,000.00
Blue sky fees and expenses (including counsel fees)............................     25,000.00
Printing and engraving expenses................................................     40,000.00
Transfer agent fees and expenses...............................................      2,500.00
Miscellaneous..................................................................     27,256.85
                                                                                  -----------
Total..........................................................................   $300,000.00
                                                                                   ==========
</TABLE>
 
   
ITEM 26.  RECENT SALES OF UNREGISTERED SECURITIES.
    
 
     The following sets forth certain information regarding sales of, and other
transactions with respect to, securities of the Company issued within the past
three years, which sales and other transactions were not registered pursuant to
the Securities Act of 1933, as amended (the "Securities Act"). All of such sales
and transactions were exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or as otherwise indicated
herein.
 
     In September 1993, in connection with the formation of the Company, Jutland
Enterprises Inc. ("Enterprises") acquired 937,500 shares of the Company's Common
Stock for consideration consisting of $300,000 in cash and $277,000 in assets.
Prior to January 31, 1994 (the end of the Company's first (partial) fiscal
year), Jutland contributed an additional $365,000 to the Company as additional
paid-in capital. Shortly after formation of the Company, Andrew Thorburn, the
Chief Executive Officer of the Company and of Enterprises, acquired 312,500
shares of the Company's Common Stock for consideration consisting of 400,000
shares of Enterprises common stock.
 
     In July and August 1994, the Company entered into two separate stock
purchase agreements with Blue Chip Computerware, Inc. ("Blue Chip"). Under the
agreements, the Company issued 260,000 shares of Common Stock to a financial
services firm in exchange for its services in arranging the transaction and
1,200,000 shares of the Common Stock to Blue Chip in exchange for $50,000 in
cash, 100,000 shares of the common stock of Enterprises and 400,000 shares of
the common stock of Blue Chip. The Company subsequently sold the shares of Blue
Chip common stock for $650,000.
 
     In September 1994 and October 1995, the Company issued 120,000 and 70,000
shares, respectively, of Series A Partially Redeemable Convertible Preferred
Stock to Howard Goldberg in connection with the Company's acquisition of the
assets of the Goldberg Companies and as part of the reconciliation of all
outstanding indebtedness and other obligations incurred in connection therewith.
 
     In September 1994, as part of the consideration for the acquisition of four
corporations conducting business as "Sammy's New York Bagels," the Company
issued an aggregate of 180,000 shares of Series B Redeemable Convertible
Preferred Stock to the shareholders of the acquired corporations. Each share of
Preferred Stock currently is convertible into one share of Common Stock.
 
   
     Effective February 1, 1995, the Company issued 825,000 shares of Series C
Convertible Preferred Stock to Blue Chip in exchange for 825,000 shares of
Common Stock held by Blue Chip. During the nine months ended October 31, 1995,
Blue Chip purchased 425,000 shares of Series C Convertible Preferred Stock at a
price of $1.00 per share. During the three-month period ended January 31, 1996,
Blue Chip purchased an additional 50,000 shares of Series C Convertible
Preferred Stock at the price of $1.00 per share.
    
 
   
     In April 1995, Andrew Thorburn, the President of the Company purchased
70,000 shares of Series C Preferred Stock at a price of $1.00 per share.
    
 
                                      II-2
<PAGE>   92
 
   
     On August 4 and December 4, 1995, the Company sold 21,500 and 25,000
shares, respectively, of Series C Preferred Stock to an unaffiliated investor at
a price of $1.00 per share.
    
 
   
     On October 31, 1995, the Company issued 5,000 shares of Common Stock to an
employee in lieu of compensation in the amount of $1,750.
    
 
   
     December 4, 1995, the Company sold 25,000 shares of Series C Preferred
Stock to an unaffiliated investor at a price of $1.00 per share.
    
 
   
     Between January 24, 1996 and April 29, 1996, the Company sold an aggregate
of 1,773,900 shares of Common Stock in two separate private placements at a
purchase price of either $1.00 or $2.00 per share. In connection with the
private placements, the Company has received $2,414,000 (net of expenses of
$48,000) including cash and other consideration valued at $410,000 which was
accepted in the form of two retail bagel stores in the final stages of
construction.
    
 
   
ITEM 27.  EXHIBITS.
    
 
     The following exhibits are filed as part of this Registration Statement:
 
   
<TABLE>
    <C>       <S>
    1.1**     Form of Underwriting Agreement. (Revised).
    1.2**     Letter of Intent.
    3.1**     Restated Certificate of Incorporation of the Company.
    3.2**     Certificate of Designations for Series A, B & C Preferred Stock.
    3.3**     Form of Second Restated Certificate of Incorporation of the Company. (Revised).
    3.4**     Amended and Restated By-Laws of the Company.
    3.5**     Form of Second Amended and Restated By-Laws of the Company. (Revised).
    4.1**     Form of Specimen of Common Stock Certificate.
    4.2**     Underwriter's Warrant Agreement.
     5.1+     Opinion of Counsel re: legality of securities being registered.
    10.1**    Form of Goldberg's Franchise Agreement.
    10.2**    Form of Sammy's Franchise Agreement.
    10.3**    Agreement dated January 12, 1993 with Kof-K Kosher Supervision.
    10.4**    All American Food Group, Inc. Omnibus Stock Plan.
    10.5*     Market Development Agreement covering the State of Arizona.
    10.6*     Market Development Agreement covering the State of Ohio.
    10.7*     Market Development Agreement, as amended, covering portions of the State of New
              York.
    10.8*     Form of Market Development Agreement.
    10.9*     Modification and Settlement Agreement between the Company and Howard Goldberg.
    11*       Earnings per Share Calculation.
    21.1*     Subsidiaries of the Company. (Revised).
    23.1*     Consent of DelSanto & DeFreitas (contained in Part II).
    23.2+     Consent of Counsel (included in their opinion filed as Exhibit 5.1).
    24.1**    Powers of Attorney.
    27.1*     Financial Data Schedule.
</TABLE>
    
 
- ---------------
 * Filed herewith.
** Previously filed.
 + To be filed by amendment.
 
ITEM 28.  UNDERTAKINGS.
 
     The undersigned registrant hereby undertakes:
 
          (1) To file, during any period in which it offers or sales securities,
     a post-effective amendment to this Registration Statement to;
 
                                      II-3
<PAGE>   93
 
              (i) Include any prospectus required by Section 10(a)(3) of the
        Securities Act of 1933, as amended (the "Act");
 
              (ii) Reflect in the prospectus any facts or events which,
        individually or together, represent a fundamental change in the
        information in the Registration Statement;
 
             (iii) Include any additional or changed material information on the
        plan of distribution.
 
          (2) For determining liability under the Act, to treat each
     post-effective amendment as a new registration statement of the securities
     offered, and the offering of the securities at that time to be the initial
     bona fide offering.
 
          (3) To file a post-effective amendment to remove from registration any
     of the securities that remain unsold at the end of the offering.
 
     Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission (the
"Commission") such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
 
     The undersigned registrant hereby undertakes:
 
          (1) For determining any liability under the Act, to treat the
     information omitted from the form of prospectus filed as part of this
     Registration Statement in reliance upon Rule 430A and contained in the form
     of prospectus filed by the registrant under Rule 424(b)(1) ,or (4), or
     497(h) under the Act as part of this Registration Statement as of the time
     the Commission declared it effective.
 
          (2) For determining any liability under the Act, to treat each
     post-effective amendment that contains a form of prospectus as a new
     registration statement for the securities offered in the registration
     statement, and the offering of the securities at that time as the initial
     bona fide offering of those securities.
 
                                      II-4
<PAGE>   94
 
                                   SIGNATURES
 
   
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE
REQUIREMENTS FOR FILING ON FORM SB-2 AND HAS DULY CAUSED THIS AMENDMENT NO. 2 TO
THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED IN FAIRFIELD, NEW JERSEY, ON THIS 19TH DAY OF AUGUST,
1996.
    
 
                                          ALL AMERICAN FOOD GROUP, INC.
 
                                          By:       /s/ Andrew Thorburn
                                            ------------------------------------
                                                      ANDREW THORBURN
                                               CHAIRMAN, PRESIDENT AND CHIEF
                                                      EXECUTIVE OFFICER
                                               (PRINCIPAL EXECUTIVE OFFICER)
 
     Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
 
   
<TABLE>
<CAPTION>
                SIGNATURE                                 TITLE                       DATE
- ------------------------------------------    ------------------------------    ----------------
<C>                                           <S>                               <C>
           /s/ ANDREW THORBURN                Chairman of the Board of           August 19, 1996
- ------------------------------------------      Directors, President and
             ANDREW THORBURN                    Chief Executive Officer
           /s/ CHRIS R. DECKER                Director, Executive Vice           August 19, 1996
- ------------------------------------------      President and Chief
             CHRIS R. DECKER*                   Financial Officer (Principal
                                                Financial and Accounting
                                                Officer)
            /s/ JOHN CHITVANNI                Director                           August 19, 1996
- ------------------------------------------
             JOHN CHITVANNI*
           */s/ ANDREW THORBURN
- ------------------------------------------
             ANDREW THORBURN
             ATTORNEY-IN-FACT
</TABLE>
    
 
                                      II-5
<PAGE>   95
 
                    CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
 
   
     We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated July 1, 1996 covering the financial statements for
the nine months ended October 31, 1995 and the year ended January 31, 1995, in
Amendment No. 2 to the Registration Statement on Form SB-2 of All American Food
Group, Inc. (No. 333-4990) to be filed with the Securities and Exchange
Commission on or about August 20, 1996, and the related Prospectus contained
therein.
    
 
                                               /s/ DELSANTO AND DEFREITAS
 
                                          --------------------------------------
                                                  DELSANTO AND DEFREITAS
   
Closter, New Jersey
August 20, 1996
    
 
                                      II-6
<PAGE>   96
 
                                 EXHIBIT INDEX
 
   
<TABLE>
<CAPTION>
                                                                                        SEQUENTIAL
EXHIBIT NO.                                   DOCUMENT                                   PAGE NO.
- -----------    ----------------------------------------------------------------------   ----------
<C>            <S>                                                                      <C>
    1.1**      Form of Underwriting Agreement........................................
    1.2**      Letter of Intent......................................................
    3.1**      Restated Certificate of Incorporation of the Company..................
    3.2**      Certificate of Designations for Series A, B & C Preferred Stock.......
    3.3**      Form of Second Restated Certificate of Incorporation of the Company
               (Revised).............................................................
    3.4**      Amended and Restated By-Laws of the Company...........................
    3.5**      Form of Second Amended and Restated By-Laws of the Company
               (Revised).............................................................
    4.1**      Form of Specimen of Common Stock Certificate..........................
    4.2**      Underwriter's Warrant Agreement.......................................
    5.1+       Opinion of Counsel re: legality of securities being registered........
   10.1**      Form of Goldberg's Franchise Agreement................................
   10.2**      Form of Sammy's Franchise Agreement...................................
   10.3**      Agreement dated January 12, 1993 with Kof-K Kosher Supervision........
   10.4**      All American Food Group, Inc. Omnibus Stock Plan......................
   10.5*       Market Development Agreement covering the State of Arizona............
   10.6*       Market Development Agreement covering the State of Ohio...............
   10.7*       Market Development Agreement, as amended, covering portion of the
               State of New York.....................................................
   10.8*       Form of Market Development Agreement..................................
   10.9*       Modification and Settlement Agreement between the Company and Howard
               Goldberg..............................................................
   11*         Earnings per Share Calculation........................................
   21.1*       Subsidiaries of the Company (Revised).................................
   23.1*       Consent of DelSanto & DeFreitas (contained in Part II)................
   23.2+       Consent of Counsel (included in their opinion filed as Exhibit 5.1)...
   24.1**      Powers of Attorney....................................................
   27.1*       Financial Data Schedule...............................................
</TABLE>
    
 
- ---------------
 * Filed herewith.
** Previously filed.
 + To be filed by amendment.

<PAGE>   1
                                                                    EXHIBIT 10.5


This Area Development Addendum is made by and between,

                            JUTLAND FOOD GROUP, INC.
                            9 LAW DR.
                            FAIRFIELD, NJ  07006

the Company,

and,

                            Joe Conti
                            9961 N. Bighorn Butte Dr.
                            Tucson, AZ  85737

The Franchisee;

This Addendum describes a business relationship between the parties by which
the Franchisee will become an Area Developer responsible for the expansion of
the Company's bagel chains in a specific area.  It is an Amendment to a
Franchise Agreement executed by the parties on ______________ 1995, and is
intended to expand the relationship described in that Agreement.  In addition
to the terms and conditions outlined in the franchise agreement, the parties
agree to the following terms and conditions under which Franchisee will operate
as Area Developers and exclusive representative of the Company.  Other than as
expressly outlined in this addendum, all terms and conditions of that Agreement
remain in effect.

1.       Nature of Representation

Subject to the mutual performance criteria and other terms and conditions
outlined in the franchise agreement and this addendum, Franchisee agrees to
serve as the company's sole and exclusive representative for the development of
the company's bagel chains in the territory denoted in this Addendum.  During
the term of this agreement the Company shall be prohibited from any development
within the designated territory, other than through Franchisee.

2.       The Territory, Development Schedule, and Fee

Franchisee shall operate as Area Developer for the State of Arizona, and agrees
to develop a minimum number of stores within the territory as outlined in the
development schedule below.



                                     -1-
<PAGE>   2
From the date of the execution of this agreement to:

<TABLE>
<CAPTION>
                     the end of               total stores opened and operating
                     ----------               ---------------------------------
                    <S>                               <C>
                      6 months                                1
                     18 months                                3
                     24 months                                5
                     36 months                                7
                     48 months                               10
                     60 months                               13
                     thereafter                       not less than 15
</TABLE>

All stores opened and operating in the territory as of the above dates, whether
owned by Franchisee or by a sub Franchisee, shall count in the maintenance of
the development schedule.

Franchisee acknowledges that the continuance of his exclusive rights to
represent the Company is expressly dependent on the maintenance of this
development schedule.  Failure to comply with this schedule for any reason,
other than the failure of the Company to maintain a current Uniform Franchise
Offering Circular, shall cause Franchisee to Forfeit his right of Exclusive
representation.

In the event Franchisee forfeits the right of exclusive representation granted
under this Addendum, Franchisee shall continue to have the responsibility of
providing services to all stores in the designated territory which are opened
as of the date of such forfeiture; and as long as such services are provided in
a manner consistent with the  Company's reasonable policies and procedures for
such Area Developer services, Franchisee shall continue to receive compensation
for providing such services as described in Paragraph 3 (three) below.

Franchisee agrees to purchase the rights to the above territory by the payment
of an Area developer fee in the amount of $22,500, payable as follows:

         Upon the execution of this agreement, a total of $15,000 shall be paid
         to the Company, $7,500 as the store franchise fee, and $7,500 as
         partial payment of the Area Development Fee; the balance to be paid in
         the same manner from the next two store franchise agreements, whether
         such agreements are executed by Franchisee, or by a sub franchisee.

3.       Rights and Obligations of Area Developer, Compensation

Franchisee, as Area Developer, shall have the exclusive right to develop the
territory for the Company, including the right to assist the Company in
locating other franchisees, who shall become sub franchisees of Area Developer.


                                     -2-
<PAGE>   3
For additional stores developed within the territory after the establishment of
franchise's initial store, and in accordance with procedures established by the
Company, Area Developer shall be responsible for assisting sub franchisees in
the building and opening of stores, the training of store managers and sub
franchisees; and shall further be responsible for the monitoring of sub
franchisee's compliance with all franchise agreements, Company manuals, and
operating procedures; provided, however, that Area Developer's duties with
respect to any sub franchisee shall not exceed those that the Company is
obligated to provide to store franchisees who are not also Area Developers.
The Company further agrees that any additional stores opened by Franchisee or
opened by a sub franchisee of Area Developer shall be subject to substantially
the same terms and conditions as those terms of the initial Franchise Agreement
between the Company and Franchisee which apply to the store franchise
agreement, and not this Area Developer Addendum.

Area Developer's compensation for providing assistance in the sale and
development of franchised stores, and for monitoring the performance of sub
franchises, shall consist of 50% of all franchise fees and franchise royalties
received by the Company from the territory, such compensation to be paid to
Area Developer within 20 days of receipt by the Company.  Other than as
provided for in paragraph 2, in accordance with which the Company may withhold
certain amounts due Franchise until franchisee has fulfilled his initial
financial obligation to the Company, such compensation includes franchise fees
and franchise royalties collected by the Company on stores owned and operated
by Area Developer.

Area Developer shall not be entitled to any portion of advertising or
promotional fees collected by the Company, or to any portion of other earnings
of the Company, other than as expressly denoted above.

4.       Right of First Refusal

During the term of this Area Development Addendum, the Company will grant to
Franchisee at the right to exercise any right of first refusal, or any purchase
option granted to the Company by virtue of any Agreement with a sub franchisee
in Area Developer's territory.

5.       Other Provisions

All other terms and conditions of the store franchise agreement of which this
addendum is part, expressly including, but not limited to, covenants not to
compete, use of trademarks and other proprietary information, and requirements
to follow the Company's operating procedures, and recipes, are also a part of
the Franchisee's agreement to serve as Area Developer under the terms of this
addendum.

Signed this___ day of ____, 1995.



                                                                              
- ------------------------------------     -------------------------------------
Andrew Thorburn                          Witness
Jutland Food Group, Inc.            
                                    
                                    
                                    
                                                                              
- ------------------------------------     -------------------------------------
Joe Conti,                               Witness
Franchisee



                                     -3-

<PAGE>   1
                                                                    EXHIBIT 10.6


This Area Development Agreement is made by and between,

                         JUTLAND FOOD GROUP, INC.
                         9 LAW DR.
                         FAIRFIELD, NJ  07006

the Company,

and,

                         Izak Lieber
                         2415 Waterfall La.
                         Columbus, OH  43209

The Franchisee;

This Agreement describes a business relationship between the parties by which
the Franchisee will become an Area Developer responsible for the expansion of
the Company's bagel chains in a specific area.  It is an Amendment to a
Franchise Agreement executed by the parties on March 13, 1995, and is intended
to expand the relationship described in that Agreement.  In addition to the
terms and conditions outlined in the franchise agreement, the parties agree to
the following terms and conditions under which franchisee will operate as Area
Developer and exclusive representative of the company.  Other than as
expressly outlined in this addendum, all terms and conditions of that
agreement remain in effect.

1.   Nature of Representation

Subject to the mutual performance criteria and other terms and conditions
outlined in the franchise agreement and this addendum, Franchisor hereby
grants to Franchisee the sole and exclusive right to represent Franchisor in
the development of the company's bagel chains in the State of Ohio.  During
the term of this agreement the Company shall be prohibited from developing its
bagel chains or pursuing any aspect of the retail or wholesale bagel business,
other than through Franchisee; but the Company may continue to operate its own
Company owned store in Columbus, Ohio.

This Agreement shall apply to any bagel concept acquired or developed by the
Franchisor, and to its successors and assigns.

2.   The Territory, Development Schedule, and Fee

Franchise shall operate as Area Developer for the State of Ohio, and agrees to
develop a minimum number of stores within the territory as outlined int he
development schedule below.

From the date of the execution of this agreement to:

          the end of               total stores opened and operating
          ----------               ---------------------------------
           9 months                     2
          18 months                     5
          24 months                     6
<PAGE>   2
          36 months                     9
          48 months                    11
          60 months                    14

          thereafter          not less than 15

All stores opened and operating in the territory as of the above dates,
whether owned by Franchisee or by a sub Franchisee, and including any stores
opened as of the execution of this Agreement, shall count in the maintenance
of the development schedule.

Franchise acknowledges that the continuance of this exclusive rights to
represents the company is expressly dependent on the maintenance of this
development schedule.  Failure to comply with this schedule for any reason,
other than the failure of the Company to maintain a current Uniform Franchise
Offering Circular, shall cause Franchisee to forfeit his right of exclusive
representation.

Franchisee agrees to purchase the rights of the above territory by the payment
of an Area developer fee in the amount of $160,000 payable as follows:

     Upon the execution of this agreement, a total of $90,000; the balance to
     be paid by the Company withholding from Area Developer, 50% of all
     compensation due Area Developer as described in paragraph 3 below.

In the event Area Developer fails to maintain the store development schedule
outlined above, the Company shall have the right to cancel Area developer's
exclusive relationship with the Company; such cancellation to be effective
immediately upon receipt by Area developer of written notice of such
cancellation by Franchiser.  Such cancellation shall result in the
cancellation of Area Developer's exclusive relationship with the Company, a
forfeiture of Area Developer's right to sell franchises; but shall not cancel
Area Developers right to continue to open stores for its own account by the
execution of a standard franchise agreement with the Company, and shall not
cancel Franchisee's right to receive compensation for continuing to provide
supervision to stores existing at the time of such cancellations, (including
unopened stores for which the franchise fee has already been paid.)

3.   Rights and Obligations of Area Developer, Compensation

Franchisee, as Area Developer, shall have the exclusive right to develop the
territory for the company, including the right to assist the company in
locating other franchisees, who shall become sub franchisees of Area
Developer/

For additional stores developed within the territory after the establishment
of franchise's initial store, and in accordance with procedures established by
the Company, Area Developer shall be responsible for assisting sub franchisees
in the building and opening of stores, the training of store managers and sub
<PAGE>   3
franchisees; and shall further be responsible for the monitoring of sub
franchisee's compliance with all franchise agreements, company manuals, and
operating procedures.

Area Developer's compensation for providing assistance in the sale and
development of franchised stores, and for monitoring the performance of sub
franchises, shall consist of 50% of all franchise fees and franchise royalties
received by the company from the territory, such compensation to be paid to
Area Developer within 20 days of receipt by the Company.  Such compensation
includes franchise fees and franchise royalties collected by the Company on
stores owned and operated by Area Developer, and any stores opened as of the
date of this Agreement.

For stores owned by the Area Developer for its own account, the net franchise
royalties shall be forwarded to Franchisor; for stores owned by sub
franchisees, the full royalty payments shall be forwarded to the Franchisor,
who shall remit Area Developer's share within 20 days of receipt by
Franchisor.

Area Developer shall not be entitled to any portion of advertising or
promotional fees collected by the Company, or to any portion of other earnings
of the company, other than as expressly denoted above.

4.        Supply of Bagels

With respect to the supply of bagels to stores operating under the Company's
Sammy's New York Bagels chain, the parties area that the Company will supply
bagels to all stores at a price of .11 per bagel including delivery.

In addition, for the purpose of supplying the Sammy's stores in Ohio directly
from his own facility, Area Developer may build a commissary for the purpose,
providing the following conditions are met:

          Area Developer is in compliance with all Area Developer and store
franchise Agreements with the Company;

          The commissary is built to the Company's specifications, including
the Company's requirements concerning the proper equipment and procedures;

          The commissary is built and operating in a manner consistent with
the Kof K Kosher certification, and the costs of obtaining and maintaining
such kosher certification are paid by Area developer.

In the event the above conditions are met, Area Developer may build a bagel
producing commissary in lieu of purchasing bagels from the Company.
<PAGE>   4
5.        Franchise and Advertising Fees

For the first six Sammy's stores built by Area Developer for his own account,
the Company agrees that the franchisee fee will be reduced to $15,000, and
that Area Developer will be entitled to 50% of that as Area Developer
compensation.

Notwithstanding any other provision to the contrary, each store in the
territory, whether owned by Area Developer or a sub Franchise, shall
contribute 1% of gross sales to the Company's national advertising and
promotional fund.  In addition, the Area Developer may, with the approval of
75% of the sub franchisees in any specific market as defined by the national
ADI, establish a regional advertising cooperative, to which all stores will
contribute an additional 1% of gross sales.

In the State of Ohio, Franchisor agrees not to change the Franchise Fee or
Franchise royalty now charged pursuant to its store Franchise Agreement
without the consent of Area Developer.

6.        The Company's Existing Store

The parties acknowledge that the Company now operates a retail store in
Columbus, Ohio, which shall be including in the provisions of this Agreement. 
It shall count towards the fulfillment of Area Developer's store development
schedule, Area developer shall have the obligation to supervise the store and
shall receive his standard compensations for such supervision; further, the
Company agrees that it shall not use said store for the establishment of
wholesale bagel sales, and is prohibited from opening and additional stores in
Ohio, during the term of this Agreement.

7.        Termination

Termination of this Area Development Agreement shall result in the forfeiture
by Area Developer of its exclusive relationship with the Company, and the
company shall have the right, effective immediately after providing written
notification of such cancellation, of marketing franchises on its own or
through other agents or representatives as it may chose; but such cancellation
will not eliminate Area Developer's obligation to continue with its service
and supervisory responsibilities with respect to stores established prior to
such cancellation.  Provided Franchisee continues to provide such services
satisfactorily, Franchise shall continue to receive its pro rata portion of
royalties from such stores, including stores not open as of the date of
cancellation, provided such stores have executed a valid franchise agreement
and fully paid the appropriate franchise fee.

8.        Regulatory Responsibility

The parties agree that in carrying out his responsibilities as Area Developer,
Area Developer shall operate solely as an agent and representative of
Franchiser, and Franchiser shall be solely responsible for maintaining all
regulatory aspects of franchising, including, but limited to maintaining a
<PAGE>   5
current Uniform Franchise Offering Circular.  Franchiser agrees to indemnify
and hold harmless Franchisee and assigns from any act arising from
Franchiser's failure to maintain necessary franchise documents.

9.        Assignability

Franchisor agrees that Area Developer may assign this Agreement to a corporate
or partnership entity of his choosing, without the imposition of any transfer
fee, providing that each shareholder or partner of such entity agrees in
writing to the non compete, confidentially, and other personally binding
provisions of this Agreement and the Franchise Agreement.

10.       Other Terms and Conditions

All other terms and conditions of the store franchise agreement of which is
addendum is part, expressly including, but not limited to, covenants not to
compete, use of trademarks and other proprietary information, and requirements
to follow the Company's operating procedures, and recipes, are also a part of
the Franchisee's agreement to serve as Area Developer under the terms of this
addendum.

The Company acknowledges that for each individual store franchise in Ohio,
whether operated by Area Developer or a third party, the Company is
responsible for the payment of any monthly fee required for the maintenance of
the Kosher supervision of the store.

All terms of that Franchise Agreement not expressly modified by this Agreement
shall have the same meaning as in the Franchise Agreement, unless expressly
modified by this Area Developer Agreement, the terms and provisions of that
Agreement shall govern the rights and obligations of the parties, and the Area
Developer Agreement and the Franchise Agreement shall be construed as one
instrument.


Signed this 13th day of March, 1996.

/s/ ANDREW THORBURN                     /s/     [SIG]
- ------------------------------          ------------------------------
Andrew Thorburn                         Witness
Jutland Food Group, Inc.


/s/     [SIG]                           /s/     [SIG]
- ------------------------------          ------------------------------
Area Developer                          Witness
<PAGE>   6

As previous principals of Sammy's, we hereby individually acknowledge our
Agreement with the provisions of this Area Developer Agreement.


/s/ ARTHUR TURKEL                       /s/         [SIG]
- ------------------------------          ------------------------------
Arthur Turkel                           Witness


/s/ SAM PULLANO                         /s/         [SIG]
- ------------------------------          ------------------------------
Sam Pullano                             Witness

<PAGE>   1






                                                                    EXHIBIT 10.7

                         ALL AMERICAN FOOD GROUP, INC.
                                      DBA
                           GOLDBERG'S NEW YORK BAGELS


                           AREA DEVELOPMENT AGREEMENT






ELEVEN CONGERS INC.
- -------------------
AREA DEVELOPER

January 19, 1996                  
- --------------------
DATE OF AGREEMENT

SEE SECTION II - PARAGRAPH C.
- -----------------------------
TERRITORY

<PAGE>   2
                         ALL AMERICAN FOOD GROUP, INC.
                           AREA DEVELOPMENT AGREEMENT


                               TABLE OF CONTENTS


         PREAMBLES

I.       ACKNOWLEDGMENTS AND REPRESENTATIONS

II.      GRANT OF AREA DEVELOPMENT
         A.    Term of Area Development Agreement
         B.    Rights reserved by the Company
         C.    The Territory

III.     OBLIGATIONS OF THE AREA DEVELOPER
         A.    Development of the Territory
         B.    Assistance to Local Franchisee
         C.    Initial Training of Franchisees
         D.    Ongoing Responsibilities

IV.      TRAINING AND OPERATING ASSISTANCE
         A.    Training
         B.    Operating assistance

V.       STORE IMAGE AND OPERATING STANDARDS
         A.    Condition and appearance of Store
         B.    Uniform image
         C.    Food and beverage products, supplies, and materials
         D.    Specifications, standards and procedures

VI.      THE MARKS
         A.    Ownership and goodwill of Marks
         B     Notification of infringements and claims
         C.    Discontinuance of use of Marks
         D.    Indemnification of Area Developer

VII.     CONFIDENTIAL INFORMATION

VIII.    NON-COMPETITION

IX.      RELATIONSHIP OF THE PARTIES/INDEMNIFICATION





                                       i
<PAGE>   3
X.       INITIAL AREA DEVELOPMENT FEE

XI.      COMPENSATION TO AREA DEVELOPER

XII.     ASSIGNMENT
         A.    By the Company
         B.    Area Developer may not assign without approval of the Company
         C.    Guarantee of Shareholders
         D.    Effect of consent to assignment

XIII.    RENEWAL OF AREA DEVELOPMENT AGREEMENT
         A.    Area Developer's right to renew
         B     Notice of renewal and non-renewal

XIV.     TERMINATION OF THE AREA DEVELOPMENT AGREEMENT
         A.    By the Area Developer
         B.    By the Company

XV.      RIGHTS OF THE COMPANY AND OBLIGATIONS OF AREA DEVELOPER
         UPON TERMINATION OR EXPIRATION OF THE AREA DEVELOPMENT
         AGREEMENT.
         A.    The Marks
         B.    Confidential information
         C.    Covenant not to compete
         D.    Continuing Obligations
         E.    The Company's right to Appoint a New Area Developer
         F.    Ongoing compensation to Area Developer

XVI.     ENFORCEMENT
         A.    Severability and substitution of valid provisions
         B.    Waiver of obligations
         C.    Force majeure
         D.    Specific performance/injunctive relief.
         E.    Rights of parties are cumulative
         F.    Costs and attorneys' fees
         G.    Governing law/consent to jurisdiction
         H.    Binding effect
         I.    Construction
         J.    Notices and payments





                                       ii
<PAGE>   4
                         ALL AMERICAN FOOD GROUP, INC.
                           AREA DEVELOPMENT AGREEMENT


         This agreement is made and entered into this 19th day of January 1996,
by and between:

                                                 All American Food Group Inc.,
                                                 a New Jersey corporation, 
                                                 with its principal place of 
                                                 business at 9 Law Drive, 
                                                 Fairfield, New Jersey 07006
                                                 (the "Company"), and

ELEVEN CONGERS, INC.

whose principal address is:                      257 South Middletown Road
                                                 Nanuet, NY 10954
                                                 ("the Area Developer").

         PREAMBLES

         The Company franchises certain food shops, known as Goldberg's Bagels
units ("Goldberg's"), and Sammy's New York Bagels, ("Sammy's"), (collectively
the "Retail Concepts"), which sell and serve a variety of freshly baked bagels,
served plain or with various toppings, sandwiches also served on bagels, soups,
salads, and other luncheon items, and a variety of soft drinks and other
beverages.  The Stores operate with and under uniform formats, designs,
systems, methods, specifications, standards and procedures, all of which may be
improved, further developed or otherwise modified from time to time by the
Company.  Such units are operated under or associated with certain trademarks,
service marks, logos, and other commercial symbols which the Company may modify
from time to time, (collectively the "Marks"), and are operated pursuant to the
Company's proprietary and confidential information and trade secrets.

         In addition to granting Franchise Agreements to own and operate units
offering the products and services approved by the Company and utilizing the
Company's formats, designs, methods, systems, standards, operating procedures,
and the Marks, to persons who meet the Company's qualifications and who are
willing to undertake the investment and effort to establish and develop bagel
stores, the Company also grants to certain individuals or other entities which
meet higher financial and other criteria, the right to operate as exclusive
Area Developers of the Company's bagel concepts for specified territories,
subject to the terms and conditions outlined herein.

I.       ACKNOWLEDGMENTS AND REPRESENTATIONS





                                       1
<PAGE>   5
         Area Developer acknowledges that he has read this Agreement and the
Company's Uniform Franchise Offering Circular and that he understands and
accepts the terms, conditions and covenants contained in this Agreement as
being reasonably necessary to maintain the Company's high standards of quality
and service, and the uniformity of those standards in order to protect and
preserve the goodwill of the Marks.  Area Developer acknowledges that he has
conducted an independent investigation of the business contemplated by this
Agreement and recognizes that, like any other business, the nature of the
business conducted by the Company may evolve and change over time, that an
investment in an Area Development Agreement involves business risks, and that
the success of the venture is largely dependent upon the business abilities and
efforts of Area Developer.

         The Company expressly disclaims the making of, and Area Developer
acknowledges that he has not received or relied upon any warranty or guaranty,
express or implied, as to the revenues, profits, or success of the business
venture contemplated by this Agreement.  Area Developer acknowledges that he
has not received or relied on any representations of the Company, or its
officers, directors, employees or agents, relating to the business venture
contemplated by this Agreement that are inconsistent with the statements made
in the Company's Uniform Franchise Offering Circular or to the terms herein.
Area Developer further represents to the Company, that Area Developer has made
no misrepresentations in obtaining the Area Development rights granted under
this Agreement.

         Area Developer has applied for the right to develop the Retail
Concepts of the Company for the territory specified herein, and such
application has been approved by the Company in reliance upon all the
representations made in such application.

II.      GRANT OF AREA DEVELOPMENT RIGHTS

         A.      Term of Area Development Agreement

         Subject to the provisions contained herein, while this Agreement is in
effect, the Company grants to Area Developer, the right to serve as the
Company's exclusive developer within the Territory described in Paragraph C of
this Section, ("the Territory"), to develop said Territory through the
ownership and operation of Franchised Units owned by the Area Developer and
through the development of stores owned and operated by sub franchisee of Area
Developer, for a term of ten (10) years, commencing on the date of this
Agreement.  Termination or expiration of this Agreement shall constitute a
termination or expiration of the Area Development rights granted herein.

         B.      Rights reserved by the Company

         The Company (on behalf of itself and its affiliates) retains the
right, in its sole discretion and without granting any rights to Area
Development: (a) to itself operate, or to grant other persons the right to
operate retail store at such locations and on such terms and conditions as the
Company deems appropriate, subject, however, to the provisions of Paragraph C
of Section II hereof; and, (b) to sell the products and services authorized for
sale at retail stores using the





                                       2
<PAGE>   6
Marks or other trademarks and service marks, through other channels of
distribution pursuant to such terms and conditions as the Company deems
appropriate.

         C.      The Territory

         For the purposes of this Agreement, the Territory shall consists of
the following:

                 In the State of New York, the counties of Nassau, Suffolk and
Westchester.

III.     OBLIGATIONS OF THE AREA DEVELOPER

The Area Developer shall perform the following functions, in all cases in
accordance with the procedures established by the Company relating to such
functions.

         A.      Development of the Territory

         The Area Developer shall develop the Territory in accordance with the
Area Development schedule included as Appendix A and attached to this
Agreement.  Failure of Area Developer to maintain the Development schedule
shall constitute a default under this Agreement, and permit the Company to
cancel this Agreement as provided herein.

         In developing the Territory the Area Developer shall assist the
Company in locating and selecting qualified store franchisees for the operation
of retail bagel stores within the Territory.  Area Developer shall be
responsible for advertising for such franchisees, (using only material approved
for said purpose by the Company), for purchasing from the Company material used
in the sales presentation, and for all expenses incurred in assisting the
Company in this function.  Area Developer expressly acknowledges, however, that
he is not acting in the capacity of Franchiser, and that the Company shall
retain the sole and exclusive right to appoint Franchisees within the
territory.

         B.      Assistance to Local Franchises

         After appointment of a local franchisee by the Company, Area Developer
shall be responsible for assisting the franchisee in the following areas, in
all cases in accordance with procedures and materials provided to Area
Developer by the Company.

                 a)       Selection of a suitable site for the location of
                          franchisee's store;

                 b)       Negotiation of a lease for franchisee's site;

                 c)       Preparation of store layout, design work, and
                          equipment order;

                 d)       Selection of contractors for the construction of
                          franchisee's store;

                 e)       Supervision of construction of franchise's store;





                                       3
<PAGE>   7
                 f)       Supervision preopening activities;

         C.      Initial Training

         Approximately 4 weeks before the opening of each franchisee's store,
Area Developer shall be responsible for the training of each Franchisee and
Franchisee's store manager, in accordance with the training syllabus and
material furnished to Area Developer by the Company.  Said training shall be
furnished to Franchisees in accordance with the Company's store Franchise
Agreement, and shall be conducted at Area Developer's own store, which Area
Developer shall maintain at all times in a manner consistent with the
requirements of this section.

         D.      Ongoing Responsibilities

         For all the stores operated within the territory, whether owned by
Area Developer or an affiliate thereof, or by a sub franchisee of Area
Developer, Area Developer shall have the following responsibilities, in all
cases to be carried out in fulfillment of Franchiser's obligations under the
Franchise Agreement, and in accordance with the procedures for such activity
promulgated by the Company for each function.

                 a)       Monitor compliance with all operating procedures and
         policies;

                 b)       Distribute all promotional and merchandising programs
         developed by the Company and forwarded to Area Developer for such
         distribution;

                 c)       When requested by the Company, assist in the
         monitoring of all royalty and other payments due the Company pursuant
         to the Franchise Agreement;

                 d)       Perform any ongoing training functions required by
         the Franchise Agreement;

                 e)       Generally serve as the Company's representative in
         the Territory;

IV.      TRAINING AND OPERATING ASSISTANCE

         A.      Training

         Prior to the opening of each Store opened in the Territory after the
initial store, the Area developer shall provide to the owner or manager of such
store, an initial training program in the operation of a retail bagel store, as
required by the Franchise Agreement, and as developed by the Company.  The Area
Developer shall be solely responsible for the costs and expenses incurred in
connection with the conduct of such initial training programs, except for those
expenses which the Franchise Agreement designates as the responsibility of the
Franchisee.





                                       4
<PAGE>   8
         Subsequent to the opening of each Store, the Area Developer will
provide such additional supplemental and refresher training programs as
required by the Franchise Agreement, and Area Developer shall be solely
responsible for all expenses incurred in connection with the conduct of such
supplemental or refresher training programs.

         B.      Operating assistance

         The Area Developer shall monitor the performance of all stores in the
territory with respect to compliance with the operating procedures and policies
promulgated by the Company, and shall furnish to all stores within the
Territory such guidance and assistance in connection with the operation of the
Store as is from time to time deemed appropriate by the Company.  Operating
assistance may consist of advice and guidance with respect to:

                 (1)      the standards, methods, and operating procedures
         utilized by the Retail Concept;

                 (2)      the preparation of food, beverages, and other
         products and services authorized for sale in the Retail Concept;

                 (3)      the selection, purchase, and preparation of food and
         beverage products, and the purchase of other approved products,
         fixtures, equipment, signs, materials, and supplies; and

                 (4)      the formulation and implementation of advertising and
         promotional programs.

         Such guidance shall be furnished in such manner as the Company
develops and modifies for the use of Area Developers in carrying out their
responsibilities under this Agreement.

V.       STORE IMAGE AND OPERATING STANDARDS

         A.      Condition and appearance of Store

         Area Developer agrees that all stores in the Territory will maintain
the condition and appearance of the Store consistent with the image of the
Retail Concept as an attractive, clean, and efficiently operated unit, offering
high quality products, efficient and courteous service, and pleasant ambiance.
In connection therewith, for all Stores within the Territory, Area Developer
shall monitor and report on the cleanliness and sanitation of all Store
premises, disposal of stale, spoiled, or unmerchantable food products,
replacement of worn out or obsolete fixtures, equipment, furniture, signs, and
utensils; repair of the interior and exterior of all Stores, and periodic
painting of all Store premises in accordance with the decor prescribed by the
Company.

         If at any time in the Area Developer's judgment, the general state or
repair, appearance, or cleanliness of the premises of any Store in the
Territory, or its fixtures, equipment, furniture,





                                       5
<PAGE>   9
signs, or utensils does not meet the Company's standards, the Area Developer
shall so notify the Company, using such forms as the Company has provided for
such reporting.

         B.      Uniform image

         The presentation of a uniform image to the public is an essential
element of a successful Franchise system.  Area Developer therefore agrees to
monitor the placement or display at all Store premises of all signs, emblems,
lettering, logos, and display and advertising materials, to insure that such
have been approved in writing by the Company, and to insure that the products
offered for sale at the Stores are only such types of food and beverage
products and services as have been approved by the Company in its capacity as
Franchiser.

         C.      Food and beverage products, supplies, and materials

         The reputation and goodwill of the Retail Concepts is based upon, and
can be maintained only by the sale of distinctive, high quality products and
services.  Area Developer therefore agrees to monitor the Stores in the
Territory to insure that they use only those ingredients in the preparation of
food and beverage products, prepare and offer for sale only those food and
beverage products, use only those plates, cups, utensils, uniforms, menus,
forms, packaging materials, labels, and other supplies, and use or offer for
sale only those other products and services which conform to the Company's
specifications and quality standards and are purchased from suppliers approved
by the Company pursuant to a list of approved products and approved suppliers
provided to Area Developer by the Company.

         D.      Specifications, standards, and procedures

         Area Developer acknowledges and agrees that each and every detail of
the appearance and operation of the Stores is important to the Company and the
Retail Concept.  The Area Developer shall assist the Company in maintaining
high standards of quality and service at all units, and, accordingly, agrees
that all Stores in the Territory shall comply with all mandatory
specifications, standards, and operating procedures (whether contained in the
Operating Manual or any other written communication to Area Development)
relating to the appearance or operation of a Retail unit, including, without
limitation:

                 (1)      type, quality, taste, appearance, weight and
         dimensions, ingredients, uniformity, manner of preparation and sale of
         all food, beverages, and other products sold by the Store, and all
         other products used in the packaging and sale thereof;

                 (2)      the safety, maintenance, cleanliness, sanitation,
         function, and appearance of all Store premises and their fixtures,
         equipment, furniture, decor, and signs;

                 (3)      qualifications, dress, general appearance, and
         demeanor of Store employees;

                 (4)      use of the Marks;





                                       6
<PAGE>   10
                 (5)      use, display and illumination of signs, posters,
         displays, menus, menu boards, standard formats, and similar items;

                 (6)      identification of each Franchisee as the independent
         owner of each Store;

                 (7)      advertising and promotional material.

         Mandatory specifications, standards, and operating procedures
prescribed from time to time by the Company in the Operating Manual, or
otherwise communicated to Franchisees in writing, shall constitute provisions
of each Franchise Agreement, and monitoring the compliance therewith shall
become part of the responsibility of the Area Developer.

VI.      THE MARKS

         A.      Ownership and goodwill of Marks

         Area Developer acknowledges that the Company owns the Marks and all
rights therein.  Area Developer further acknowledges that Area Developer's
right to use the Marks is derived solely from this Agreement and is limited to
the conduct of his business pursuant to and in compliance with this Agreement
and all applicable specifications, standards, and operating procedures
prescribed by the Company from time to time during the term of the Area
Development Agreement.  Any unauthorized use of the Marks by Area Developer
shall constitute a breach of this Agreement and an infringement of the rights
of the Company in and to the Marks.

         Area Developer agrees that all usage of the Marks by Area Developer
and any goodwill established thereby shall inure to the exclusive benefit of
the Company, and Area Developer acknowledges that this Agreement does not
confer any goodwill or other interests in the Marks upon Area Developer.

         All provisions of this Agreement applicable to the Marks shall apply
to any additional trademarks, service marks, logos, and commercial symbols
hereafter authorized for use by and licensed to Area Developer by the Company.

         During the term of this Agreement and after termination or expiration
hereof, Area Development agrees not to dispute or contest, for any reason
whatsoever, directly or indirectly, the validity, ownership, or enforceability
of any of the Marks; or to counsel, procure, or assist anyone else to do the
same; nor directly or indirectly attempt to dilute the value of the good will
attaching to the Marks; nor counsel, procure, or assist anyone else to do the
same.

         B.      Notification of infringements and claims

         Area Developer shall immediately notify the Company in writing of any
apparent infringement of, or challenge to, any mark, or claim by any person of
any rights in any Mark or





                                       7
<PAGE>   11
any similar trade name, trademark, or service mark of which Area Developer
becomes aware.  Area Developer shall not communicate with any person other than
the Company and its counsel in connection with any such infringement,
challenge, or claim.  The Company shall have sole discretion to take such
actions as it deems appropriate and the right to exclusively control any
litigation, U.S. Patent and Trademark Office proceeding, or other
administrative or judicial proceeding arising out of any such infringement,
challenge, or claim relating to any Mark.  Area Developer agrees to execute any
and all instruments and documents, render such assistance, and do such acts and
things as may, in the opinion of the Company's counsel, be necessary or
advisable to protect and maintain the interests of the Company in any such
litigation, U.S. Patent and Trademark Office proceeding, or other
administrative proceeding, and to otherwise protect and maintain the interests
of the Company in the Marks.

         C.      Discontinuance of use of Marks

         If it becomes advisable at any time, in the Company's sole discretion,
for the Company, the Area Developer, or both, to modify or discontinue use of
any Mark, or use one or more additional or substitute trademarks or service
marks, the Company will so direct Area Developer, and Area Developer agrees, at
its own expense, to comply with such direction within a reasonable time after
receipt of such direction.

         D.      Indemnification of Area Developer

         The Company agrees to indemnify Area Developer against, and to
reimburse Area Developer for all damages for which he is held liable in any
proceeding arising out of Area Developer's authorized use of any Mark pursuant
to and in compliance with this Agreement, and for all costs reasonably incurred
by Area Developer in the defense of any such claim brought against him or in
any such proceeding in which he is named as a party, provided that Area
Developer has timely notified the Company of such claim or proceedings, and has
otherwise complied with this Agreement.

VII.     CONFIDENTIAL INFORMATION

         The Company possesses certain confidential and proprietary
information, consisting of the following categories of information, methods,
techniques, procedures, and knowledge acquired by or developed by, for, or on
behalf of the Company (the "Confidential Information"):

                 (1)      ingredients, recipes, and methods of preparation of
         certain food and beverage products sold at and through the Retail
         Concepts;

                 (2)      methods, techniques, formats, specifications,
         procedures, information, systems, and knowledge of and experience in,
         the operation and franchising of retail bagel stores;

                 (3)      sources of food and beverage products, and supplies
         for the preparation and serving of food and beverage products;





                                       8
<PAGE>   12
                 (4)      programs and concepts for the marketing of bagels and
         the franchising of bagel stores;

                 (5)      designs, concepts, architectural and other plans, and
         other information relating to the appearance and image of the Retail
         Concepts;

                 (6)      training programs and techniques for, and knowledge
         relating to, the selection of managers and employees of the Retail
         Concepts; and

                 (7)      knowledge and information relating to the planning,
         development, and testing of new food, beverages, or other items for
         possible sale at the Retail Concepts;

         During the term of this Agreement, the Company will disclose the
Confidential Information to Area Developer in providing Area Developer with the
guidance and assistance required to discharge his responsibilities under this
Agreement.

         Area Developer acknowledges and agrees that no interest in the
Confidential Information has or will be acquired by Area Developer, other than
the right to utilize it in discharging the responsibilities of this Agreement,
while this Agreement is in effect,, and that the use or duplication of the
Confidential Information in any other business would constitute an unfair
method of competition.  Area Developer acknowledges and agrees that the
Confidential Information is proprietary and involves trade secrets of the
Company, and is disclosed to Area Developer solely on the condition that Area
Developer agrees, and Area Developer does hereby agree:

                 (1)      not to use the confidential information in any other
         business or capacity;

                 (2)      to maintain the absolute confidentiality of the
         Confidential Information during and after the term of the Area
         Development;

                 (3)      not to make unauthorized copies of any portion of the
         Confidential Information disclosed in written form; and

                 (4)      to adopt and implement all reasonable procedures
         prescribed from time to time by the Company to prevent unauthorized
         use or disclosure of the Confidential Information, including, without
         limitation, restrictions on disclosure thereof to employees of the
         Store, and the use of non-disclosure and noncompetition clause in
         employment agreements with employees who have access to the
         Confidential Information.

VIII.    NON-COMPETITION

         Area Developer acknowledges and agrees that the Company would be
unable to protect its trade secrets against unauthorized use, and would be
unable to encourage a free exchange of ideas and information among Franchisees
of the Retail Concepts if Area Developers were





                                       9
<PAGE>   13
permitted to hold interests in any competitive businesses.  Therefore, during
the term of the Area Development Agreement, neither Area Developer, any
shareholder or partner (if Area Developer is a corporation or partnership), nor
any member of his or their households, shall have any interest as an owner,
investor, partner, director, officer, employee, consultant, representative, or
agent, or in any other capacity, in any other restaurant or carry-out business
serving or selling bagels or other baked goods, sandwiches, or any other
restaurant or business selling products or providing services substantially
similar to the products and services sold by or through the Retail Concepts,
except for other stores operating under Franchise Agreements with the Company,
and the ownership of securities listed on a stock exchange or traded on the
over-the -counter market that represent five percent (5%) or less of that class
of securities.

IX.      RELATIONSHIP OF THE PARTIES/INDEMNIFICATION

         It is understood and agreed by the parties hereto that this Agreement
does not create a fiduciary relationship between them, that the Company and
Area Developer shall be independent contractors and that nothing in this
Agreement is intended to make either party a general or special agent, legal
representative, subsidiary, joint venturer, partner, employee, or servant of
the other for any purpose.

         The Company has not authorized or empowered Area Developer to use the
Marks except as provided by this Agreement, and Area Developer shall not employ
any Mark in signing any contract, lease, mortgage, check, purchase agreement,
negotiable instrument, or other legal obligation without the prior written
consent of the Company, or employ any Mark in a manner that is likely to result
in liability to the Company for any indebtedness or obligation of Area
Developer.

         Except as expressly authorized by this Agreement, neither the Company
nor Area Developer shall make any express or implied agreements, guaranties or
representations, or incur any debt, in the name of or on behalf of the other,
or represent that their relationship is other than Franchiser and Area
Developer.  Neither the Company nor Area Developer shall be obligated by, or
have any liability under, any agreements or representations made by the other
that are not expressly authorized hereunder, nor shall the Company be obligated
for any damages to any person or property directly or indirectly arising out of
the development of the Territory pursuant to this Agreement, whether or not
caused by Area Developer's negligent or willful action or failure to act.

         Area Developer agrees to indemnify and hold harmless the Company and
its affiliates, stockholders, directors, officers, employees, agents and
assignees, from and against any claims, suits, actions, losses, liability,
taxes, or damages (actual or consequential), and all reasonable costs and
expenses in connection with the defense of any claim brought against any of
them or any action in which any of them is named as a party, (including,
without limitation, reasonable accountants', attorneys' and expert witness
fees, cost of investigation, and proof of facts, court costs, other litigation
expenses, and travel and living expenses) which any of them may suffer,
sustain, or incur by reason of, arising from, or in connection with, Area
Developer's activities in connection with this Agreement.





                                       10
<PAGE>   14
         The indemnities and assumption of liabilities and obligations herein
shall continue in full force and effect subsequent to and notwithstanding the
expiration or termination of this Agreement.

X.       INITIAL AREA DEVELOPMENT FEE

         Area Developer shall pay to the Company a non-recurring initial Area
Development fee of $250,000 (Two hundred fifty thousand dollars).  The initial
Area Development fee shall be payable and fully earned by the Company upon
execution of this Agreement and shall be non-refundable.

         The Company agrees to accept a Note in payment for the initial fee
provided that such Note shall have the following characteristics:

                 It shall be secured by Area Developer placing in escrow with
the Company or its designee, a minimum of 60,000 shares of the common stock of
the Company, previously purchased by Area Developer.

                 The Note shall repaid by the Company withholding from Area
Developer 75% of the compensation otherwise due Area Developer under this
Agreement, until the note is paid in full.

                 Beginning with the quarter ending September 30, 1996, a
minimum payment against the outstanding principals of $20,000 is due and
payable at the end of each calendar quarter.

                 Until paid in full, the unpaid balance of the Note shall earn
interest at the rate of 6% annually, computed and added to the total on a
quarterly basis.

         Upon payment of the above fee and execution of this Agreement, Area
Developer shall become the Company's sole and exclusive representative in the
Territory, responsible for the carrying out the duties outlined herein, and
eligible to receive the compensation outlined below.

XI.      COMPENSATION TO AREA DEVELOPER

         During the term of this Agreement, and provided Area Developer is in
compliance with this Agreement and all other Franchise, Development, and other
Agreements with the Company, then, as full compensation for providing the
services described in this Agreement, Area Developer shall receive as
compensation, the following percentage of the fees received by the Company in
the Territory:

<TABLE>
                          <S>                                      <C>
                          Franchise Fees                            50%
                          Royalties                                 50%
</TABLE>





                                       11
<PAGE>   15
         Area Developer shall not be entitled to, and expressly disclaims any
rights to, any additional fees or compensation from the Company, or any
affiliate of the Company, whether from fees received by the Company for its
Promotional Fund, for the sale of any equipment or other product, or from any
other source whatever.

         The Company shall remit Area Developer's portion of the above fees to
Area Developer within 30 days of receipt of such fees by the Company, and, in
the event the Note described in Section X above is outstanding, the Company
shall first deduct from compensation earned under this Section, any repayment
required under such Note.

XII.     ASSIGNMENT

         A.      By the Company

         This Agreement is fully assignable by the Company and shall inure to
the benefit of any Assignee or other legal successor to the interest of the
Company.

         B.      Area Developer may not assign without approval of the Company

         Area Developer understands and acknowledges that the rights and duties
created by this Agreement are personal to Area Developer, and that the Company
has granted the Area Development rights contained in this Agreement, in
reliance upon the individual or collective character, skill, aptitude,
attitude, business ability, and financial capacity of Area Developer (or its
shareholders or partners, if Area Developer is a corporation or partnership).
Therefore, the Area Developer, nor any interest therein, nor any part or all of
the ownership of the Area Development rights contained herein, may be
voluntarily, involuntarily, directly or indirectly, assigned, sold, subdivided,
sub Franchised, or otherwise transferred by Area Developer or its owners,
without the prior written approval of the Company.  Any such assignment or
transfer without such approval shall constitute a breach hereof and shall
convey no rights to or interests in the Area Development Agreement, or the Area
Development rights contained in this Agreement.

         C.      Guarantee of shareholders

         Any person who becomes a shareholder of Area Developer during the term
of the Area Development Agreement shall execute an agreement in a form
furnished or approved by the Company undertaking to be personally bound jointly
and severally by all provisions of the Agreements relating to confidential
information and non competition.  Area Developer shall furnish to the Company
at any time upon request a certified copy of the articles of incorporation and
a list, verified as being true and correct and in such form as the Company may
require, of all shareholders of record reflecting their respective interests in
the Area Developer Agreement, and the Development rights therein.

         D.      Effect of consent to assignment





                                       12
<PAGE>   16
         The Company's consent to an assignment by Area Developer (or its
owners) of any interest subject to the restrictions of this Section XIII shall
not constitute a waiver of any claims it may have against Area Developer (or
any of its owners), nor shall it be deemed a waiver of the Company's right to
demand exact compliance with any of the terms or conditions of the Area
Development Agreement by the Assignee.

XIII.    RENEWAL OF AREA DEVELOPMENT

         A.      Area Developers right to renew

         Area Developer shall have the right to renew this Agreement for two
successive five (5) year terms, if upon expiration of the initial or first
renewal term of the Area Development Agreement, Area Developer is;

                 (1)      in compliance with all aspects of the Area
         Development Agreement, specifically including the Development Schedule
         contained herein;

                 (2)      in compliance with all Store franchise Agreements and
         other Agreements between the Company and the Area Developer and its
         affiliates;

                 (3)      able to demonstrate to the satisfaction of the
         Company that it has the ability to continue to discharge its
         responsibilities under the Area Development Agreement;

         If the foregoing provisions have been met, then Area Development
shall, upon the terms and conditions herein contained, have the right to renew
the Area Development for two (2) successive five (5) year terms, without the
payment of any renewal fee.

         B.      Notice of renewal and non-renewal

         If Area Developer desires to renew the Area Development Agreement then
Area Developer shall give the Company written notice of his exercise of his
option to renew at least one hundred eighty (180) days, but not more than one
(1) year, prior to the expiration of the term of the Agreements.  The Company
agrees to give Area Developer written notice of its determination whether or
not Area Developer has the right to renew the Area Development Agreement by the
later of one hundred eighty (180) days prior to the expiration of the term of
this Agreement, or thirty (30) days after the Company's receipt of such written
notice of exercise of such option to renew.  A notice of non-renewal by the
Company shall state the reasons for the Company's refusal to renew.

XIV.     TERMINATION OF THE AREA DEVELOPMENT AGREEMENT

         A.      By the Area Development





                                       13
<PAGE>   17
         Area Developer may cancel this Agreement at any time by providing
written notice to the Company 60 days prior to such cancellation.  Upon
expiration of such notice period, this Agreement shall of no further force and
effect, and Area developer shall no longer be responsible to discharge the
responsibilities hereunder, and shall receive no further compensation from the
Company;

         Area Developer acknowledges, however, that those provisions of this
Agreement that by their nature survive the cancellation of this Agreement,
including without limitation the non competition and confidentially provisions
hereof, shall continue in full force and effect after such cancellation.

         B.      By the Company

         The Company shall have the right to terminate this Agreement effective
upon delivery of notice of termination to Area Developer if Area Developer or
any of its shareholders or partners, if Area Developer is a corporation or
partnership,

                 (1)      fails to open the initial Store for business as
         provided in Paragraph B or D of Section 3 of this Agreement;

                 (2)      has failed, as of any anniversary date of this
         Agreement, to maintain the Development Schedule in this Agreement;

                 (3)      has made any material misrepresentation or omission
         in its application for the Area Development Agreement;

                 (4)      is convicted of or pleads no contest to a felony or
         any crime or offense that may adversely affect the reputation of the
         Retail Concepts or the goodwill associated with the Marks;

                 (5)      fails to provide to any of the Stores in the
         Territory, any of the services provided for in this Agreement;

                 (6)      makes an unauthorized assignment or transfer of this
         Agreement, or any ownership interest in the Area Development rights;

                 (7)      makes any unauthorized use of the Marks or
         unauthorized use or disclosure of Operating Manual or any other
         Confidential Information;

                 (8)      fails or refuses to comply with any mandatory
         specification, standard or operating procedure prescribed by the
         Company relating to the cleanliness or sanitation of the Stores;

                 (9)      fails to discharge his responsibilities under this or
         any other Development or Franchise Agreement with the Company; or





                                       14
<PAGE>   18
                 (10)     is or becomes insolvent, or in the event a voluntary
         or involuntary petition for bankruptcy, with Area Developer as debtor,
         is filed under the United States Bankruptcy code or any similar law,
         or if Area Developer makes an assignment for the benefit of
         creditors,;

XV.      RIGHTS OF THE COMPANY AND OBLIGATIONS OF AREA DEVELOPER UPON
         TERMINATION OR EXPIRATION OF THE AREA DEVELOPMENT AGREEMENT

         A.      The Marks

         Area Developer agrees that after the termination or expiration
(without renewal) of the Area Development Agreement:

                 (1)      Area Developer (and all owners thereof) shall not
         directly or indirectly at any time or in any manner identify himself
         or any business as a current or former Area Developer of the Company,
         or use the Marks, any colorable imitation thereof or other indicia of
         the Retail Concepts in any manner or for any purpose, or utilize for
         any purpose material that suggests or indicates a connection or
         association with the Company, other than the operation of a Retail
         Store operating under a Franchise Agreement with the Company.

                 (2)      Area Developer will promptly take such action as may
         be required to cancel all fictitious or assumed names, or equivalent
         registrations relating to the use of the Marks;

         B.      Confidential information

         Area Developer agrees that upon termination or expiration without
renewal of the Area Development Agreement, he will immediately cease to use the
Confidential Information relating to Franchising, or the operation of a
Franchise System, in any business or otherwise, and return to the Company all
copies of the Operating Manual and other material which have been loaned to him
by the Company, except as may still be required by Area Developer in the
operation of a Retail Store operating under a valid Franchise Agreement with
the Company.

         C.      Covenant not to compete

         Area Developer (and its shareholders, directors, and officers, if Area
Developer is a corporation, or its partners, if Area Developer is a
partnership) agrees that for a period of two (2) years following the
termination or expiration (without renewal) of this Agreement, Area Developer
(and if Area Development is a corporation or a partnership, its shareholders,
directors, officers, partners, and members of their immediate families) will
not have any interest, directly or indirectly, as an owner, partner, director,
officer, employee, consultant, representative or agent, or in any other
capacity, in any business engaged in the franchising, licensing, or other
expansion of any retail concept substantially similar to the business of the
Company, other than





                                       15
<PAGE>   19
the ownership of securities traded on a stock exchange or on the
over-the-counter market that represent five percent (5%) or less of that class
of securities.

         D.      Continuing obligations

         All obligations of the Company and Area Developer which expressly or
by their nature survive the expiration or termination of this Agreement,
including, without limitation, the provisions of Section 8 and Paragraph D of
Section 17, shall continue in full force and effect subsequent to and
notwithstanding its expiration or termination, until they are satisfied or by
their nature expire.

         E.      The Company's Right to Appoint a New Area Developer

         Upon the termination or expiration of this Agreement, Area Developer
expressly acknowledges the right of the Company to appoint a new Area Developer
in the Territory, under such terms and conditions as the Company deems
appropriate.

         F.      On Going Compensation to Area Developer

         Subsequent to the termination or expiration of this Agreement, Area
Developer's right to compensation from the fees and royalties generated within
the Territory shall cease, except that, in the event that the Company elects to
terminate the Agreement pursuant to paragraph B. (2) of Section XV of this
Agreement, and the Area Developer is otherwise capable of continuing to
discharge his responsibilities under this Agreement with respect to stores
already established in the Territory,, then Area Developer shall continue to
provide such services, and shall continue to be compensated for such.  In such
events, those provisions of this Agreement which by their nature are necessary
for the implementation of this paragraph shall survive the termination of this
Agreement.

         The provisions of this paragraph in no way limit the Company's right
to appoint a new Area Developer in the Territory, provided, however, that, in
the event the provisions of this paragraph are in effect, any such new Area
Developer shall have no responsibility for stores operating at the time of
termination of Area Developer.

XVI.     ENFORCEMENT

         A.      Severability and substitution of valid provisions

         Except as expressly provided to the contrary herein, each section,
paragraph, term, and provision of this Agreement, and any portion thereof,
shall be considered severable, and if, for any reason, any such portion of this
Agreement is held to be invalid, contrary to, or in conflict with any
applicable present or future law or regulation by any court, agency, or
governmental authority of competent jurisdiction, that ruling shall not impair
the operation of, or have any other effect upon, this Agreement, unless the
Company has been a party to such proceeding, and until such ruling has been
affirmed in an unappealable ruling of a reviewing court or body, or the





                                       16
<PAGE>   20
time for any such appeal has expired (or upon Area Developer's receipt of
written notice of non-enforcement of such provision from the Company), from and
after which time such other portions of this Agreement as may remain otherwise
intelligible shall continue to be given full force and effect and bind the
parties hereto, and any portion held to be invalid shall be deemed not to be a
part of this Agreement.

         To the extent that any provision hereof is deemed unenforceable by
virtue of its scope in terms of area, length of time, or nature of prohibited
activity, but can be made enforceable by limitations upon such scope, then Area
Developer and the Company agree that such provisions shall be enforced to the
full extent permissible under the laws and public policies of the jurisdiction
in which enforcement is sought.  If any applicable and binding law, or rule of
any jurisdiction requires a greater prior notice of the termination of or
non-renewal of this Agreement than is required hereunder, or the taking of some
other action not required hereunder, or if under any applicable and binding law
or rule of any jurisdiction, any provision of this Agreement or any
specification, standard, or operating procedure prescribed by the Company is
invalid or unenforceable, the prior notice or other action required by such law
or rule shall be substituted for the comparable provisions hereof, and the
Company shall have the right, in its sole discretion, to modify such invalid or
unenforceable provision, specification, standard, or operating procedure to the
extent required to be valid and enforceable.  Area Developer agrees to be bound
by any promise or covenant imposing the maximum duty permitted by law which is
subsumed within the terms of any provision hereof, as though it were separately
articulated in and made a part of this Agreement, that may result from striking
from any of the provisions hereof, or any specification, standard, or operating
procedure prescribed by the Company, any portion or portions of which a court
may hold to be unenforceable in a final decision to which the Company is a
party, or from reducing the scope of any promise or covenant to the extent
required to comply with such a court order.  Such modifications to this
Agreement shall be effective only in such jurisdiction, unless the Company
elects to give them greater applicability, and this Agreement shall be enforced
as originally made and entered into in all other jurisdictions.

         B.      Waiver of obligations

         The Company and Area Developer may each by written instrument
unilaterally waive or reduce any obligation of or restriction upon the other
under this Agreement, effective upon delivery of written notice thereof to the
other or such other effective date stated in the notice of waiver.  Whenever
this Agreement requires the Company's prior approval or consent, Area Developer
shall make a timely written request therefore, and such approval shall be
obtained in writing.

         The Company makes no warranties or guaranties upon which Area
Developer may rely, and assumes no liability or obligation to Area Developer,
by granting any waiver, approval or consent to Area Developer, or by reason of
any neglect, delay, or denial of any request therefor.  Any waiver granted by
the Company shall be without prejudice to any other rights the Company may
have, will be subject to continuing review by the Company, and may be revoked,
in the Company's sole discretion, at any time and for any reason, effective
upon delivery to Area Developer ten (10) days' prior written notice.





                                       17
<PAGE>   21
         The Company and Area Developer shall not be deemed to have waived or
impaired any right, power, or option reserved by this Agreement (including,
without limitation, the right to demand exact compliance with every term,
condition, and covenant herein, or to declare any breach thereof to be a
default and to terminate the Area Developer prior to the expiration of its
term), by virtue of any custom or practice of the parties at variance with the
terms hereof; any failure, refusal, or neglect of the Company or Area Developer
to exercise any right under this Agreement, or to insist upon the other's exact
compliance with its obligation hereunder, including, without limitation, any
mandatory specification, standard, or operating procedure; any waiver,
forbearance, delay, failure, or omission by the Company to exercise any right,
power or option, whether of the same, similar of different nature, with respect
to other Area Developer Agreements.

         C.      Force majeure

         Neither the Company nor Area Developer shall be liable for loss or
damage or deemed to be in breach of this Agreement if its failure to perform
its obligations hereunder results from transportation shortages, inadequate
supply of labor, materials, or energy; compliance with any law, ruling, order,
regulation, requirement, or instruction of any federal, state, or municipal
government, or any department or agency thereof (other than a judgment for the
payment of money); acts of God, acts or omissions of the other party; fires,
strikes, embargoes, war, or riot; or any other similar event or cause.  Any
delay resulting from any of said causes shall extend performance accordingly or
excuse performance, in whole or in part, as may be reasonable.

         D.      Specific performance/injunctive relief

         Nothing herein contained shall bar the Company's or the Area
Developer's right to obtain specific performance of the provisions of this
Agreement and to obtain injunctive relief against threatened conduct that will
cause it irreparable loss or damage under customary rules of equity.  Area
Developer agrees that the Company may have such injunctive relief, without
bond, but upon due notice, in addition to such further and other relief as may
be available at equity or law, and the sole remedy of Area Developer, in the
event of any improper or wrongful entry of such injunction, shall be the
dissolution of such injunction upon hearing duly had, all claims for damages by
reason of the wrongful issuance of any such injunction being expressly waived
hereby.

         E.      Rights of parties are cumulative

         The rights of the Company and Area Developer hereunder are cumulative,
and no exercise or enforcement by the Company or Area Developer of any right or
remedy hereunder shall preclude the exercise or enforcement by the Company or
Area Developer of any other right or remedy hereunder, which the Company or
Area Developer is entitled by law or equity to enforce.

         F.      Costs and attorneys' fees





                                       18
<PAGE>   22
         If a claim for amounts owed by Area Developer to the Company or its
affiliates is asserted in any legal proceeding before a court of competent
jurisdiction, or if the Company or Area Developer is required to enforce this
Agreement in a judicial proceeding, the party prevailing in such proceeding
shall be entitled to reimbursement of its costs and expenses, including
reasonable accounting and legal fees, incurred in connection with such
proceeding.

         G.      Governing law/consent to jurisdiction

         Except to the extent governed by the United States Trademark Act of
1946, as amended (Lanham Act, 15 U.S.C. Sections 1051 et seq.), or any other
applicable federal law, this Agreement shall be governed by the laws of the
State of New Jersey.  This Agreement is made at Fairfield, New Jersey.  Area
Developer agrees that the Company may institute any action against Area
Developer arising out of or relating to this Agreement in any state or federal
court of general jurisdiction in the State of New Jersey, and Area Developer
irrevocably submits to the jurisdiction of such court and waives any objection
he may have to either the jurisdiction or venue of such court.

         H.      Binding effect

         This Agreement is binding upon the parties hereto and their respective
executors, administrators, heirs, assigns, and successors in interest, and
shall not be modified except by written agreement signed by both Area Developer
and the Company.

         I.      Construction

         The preambles and exhibits hereto are a part of this Agreement.  This
Agreement constitutes the entire Agreement of the parties, and there are no
other oral or written understandings or Agreements between the Company and Area
Developer relating to the subject matter of this Agreement.

         Except as otherwise expressly provided herein, nothing in this
Agreement is intended, nor shall be deemed to confer any rights or remedies
upon any person or legal entity not a party hereto.

         Except where this Agreement expressly obligates the Company not to
unreasonably withhold its approval of any action or request of Area Developer,
the Company has the absolute right to grant or withhold such approval or grant
or refuse such request in its sole and absolute discretion.

         The heading of the several sections and paragraphs hereof are for
convenience only and do not define, limit, or construe the contents of such
sections or paragraphs.

         The term "Area Developer" as used herein is applicable to one or more
persons, a corporation or a partnership, as the case may be; the singular usage
includes the plural and vice





                                       19
<PAGE>   23
versa; and the feminine, masculine, and neuter usages each includes the other
usages.  If two or more persons or entities are at any time Area Developers
hereunder, as partners, joint venturers, or otherwise, their obligations and
liabilities to the Company shall be joint and several.  References to "Area
Developer," "Owner," "Transferee," or "Assignee" which are applicable to an
individual or individuals shall mean the owner or owners of the equity or
operating control of Area Developer or the transferee or Assignee, if Area
Developer or the Assignee is a corporation or partnership.

         This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original.

         J.      Notices and payments

         All written notices and reports permitted or required to be delivered
by the provisions of this Agreement or of the Operating Manual, shall be deemed
so delivered at the time delivered by hand, one (1) business day after sending
by telegraph or comparable electronic system or by U.S. Express Mail or
comparable private commercial overnight carrier service, or three (3) business
days after placed in the U.S. mail by Registered or Certified Mail, Return
Receipt Requested, postage prepaid and addressed to the party to which such
notice is directed at its most current principal business address as set forth
in the records of the Company.

         All payments and reports required by this Agreement shall be directed
to the Company at the address specified by the Company from time to time, or to
such other persons and places as the Company may direct from time to time.  Any
required payment or report not actually received by the Company during regular
business hours on the date due or properly placed in the U.S. mail and
postmarked by postal authorities at least three (3) business days prior
thereto, shall be deemed delinquent.


IN WITNESS WHEREOF, the parties hereto have executed this Agreement as follows:



Area Developer:                              Witness:



                                                   
- ---------------------------------
ELEVEN CONGERS, INC.
Thomas C. Winn, President




All American Food Group, Inc.                Witness:



                                                   
- ---------------------------------
Andrew Thorburn, President






                                       20
<PAGE>   24
                                   APPENDIX A

                              DEVELOPMENT SCHEDULE


Area Developer acknowledges that the grant of rights contained in the Area
Development Agreement between the parties is expressly contingent on the
obligation of the Area Developer to develop the Territory in accordance with
the minimum development schedule outlined below.  As of the anniversary date of
this Agreement, Area Developer agrees that the following minimum number of
retail stores operating under the trade names and in accordance with the
policies and procedure of the Company shall be operating:



<TABLE>
<CAPTION>
                 At the end of year                   number of stores
                 ------------------                   ----------------
                           <S>                                <C>
                           1                                  3
                           2                                  6
                           3                                  11
                           4                                  16
                           5                                  21
</TABLE>

For the purposes of this schedule, only stores open and operating as of each
anniversary date shall be counted, and stores shall be included in this
schedule whether opened and operated by the Area Developer, or a sub franchisee
of Area Developer; it is further agreed that stores under the "Goldberg's" and
"Sammy's" name shall count equally, in the maintenance of this development
schedule.

It is expressly understood by the parties that failure of the Area Developer to
maintain the above Development Schedule shall be sufficient grounds for the
cancellation of Area Developer's exclusive rights to the Territory, and that
such failure shall constitute a default under the Area Development Agreement,
entitling the Company to the remedies available under the Agreement for such
default.



                                                   
- --------------------------------
Area Developer                               Witness:


                                                   
- --------------------------------
All Amercian Food Group, Inc.                Witness:






                                       21
<PAGE>   25
                     ADDENDUM TO AREA DEVELOPMENT AGREEMENT
                   BETWEEN ELEVEN CONGERS, INC. (DEVELOPER),
               AND ALL AMERICAN FOOD GROUP, INC., (THE "COMPANY")


Whereas the parties have entered into an Area Development Agreement (the
"Agreement"), dated January 19, 1996, under which Developer has purchased the
rights to develop the Company's retail bagel concepts, and

Whereas the parties are now desirous of increasing the territory covered by
that Agreement, and

Whereas there remains outstanding from the initial agreement a Note in the
amount of $175,000, and

Whereas the Company acknowledges receipt of an additional payment of $75,000,
paid simultaneously with the execution of this Addendum, and

Whereas the parties are desirous of amending certain features of that
Agreement,

Now therefore on this 22nd day of April, 1996, for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereby  enter into this Addendum to the previous Agreement.

1.  Except as expressly amended or modified by this Addendum, the terms and
provisions of the Agreement of January 19, 1996 are hereby expressly affirmed.

2.  Section II C. is hereby amended to include the following additional
territory:

         In the City of New York, the Borough of Queens.

3.  Section X is hereby amended as follows:

         a) The initial fee is increased to $400,000.

The Note described in Section X is hereby raised to $250,000, due and payable
as described therein.

Failure to make the minimum payment shall result in the cancellation of the
Agreement and this Addendum.

4.  The Development schedule for the additional territory shall be calculated
separately from the development schedule in Appendix A of the Agreement.





                                       22
<PAGE>   26
As of each anniversary date of this Addendum, in the territory covered by this
Addendum, the Developer agrees that the following minimum number of stores
shall be open and operating under the trade names and in accordance with the
policies and procedures of the Company:

<TABLE>
<CAPTION>
                 At the end of year                         number of stores
                 ------------------                         ----------------
                           <S>                                      <C>
                           1                                        2
                           2                                        5
                           3                                        8
                           4                                        12
                           5                                        16
</TABLE>

5.  For the purpose of establishing the Company's rights to terminate the
Agreement for failure to fulfill the development schedule, the development
schedule for the territory in the Agreement, and the development schedule for
the territory outlined in this Addendum, shall be calculated separately, and
the failure of the developer to reach the development schedule of either
territory shall have no bearing on the developer's rights in the other.

In Witness whereof the parties hereto have executed this Addendum as follows:





                                                   
- --------------------------------
Area Developer                               Witness:


                                                   
- --------------------------------
All American Food Group, Inc.                Witness:






                                       23

<PAGE>   1
                                                                    EXHIBIT 10.8


                         ALL AMERICAN FOOD GROUP, INC.
                                      DBA
                          GOLDBERG'S NEW YORK BAGELS


                          AREA DEVELOPMENT AGREEMENT





- -------------------------
AREA DEVELOPER

- ------------------------------
DATE OF AGREEMENT

SEE SECTION II - PARAGRAPH C.
TERRITORY
<PAGE>   2
                         ALL AMERICAN FOOD GROUP, INC.
                          AREA DEVELOPMENT AGREEMENT


                               TABLE OF CONTENTS


       PREAMBLES                                                          1

I.     ACKNOWLEDGMENTS AND REPRESENTATIONS                                1

II.    GRANT OF AREA DEVELOPMENT
       A.    Term of Area Development Agreement                           2
       B.    Rights reserved by the Company                               2
       C.    The Territory                                                2

III.   OBLIGATIONS OF THE AREA DEVELOPER
       A.    Development of the Territory                                 3
       B.    Assistance to Local Franchisee                               3
       C.    Initial Training of Franchisees                              3
       D.    Ongoing Responsibilities                                     3

IV.    TRAINING AND OPERATING ASSISTANCE
       A.    Training                                                     4
       B.    Operating assistance                                         4

V.     STORE IMAGE AND OPERATING STANDARDS
       A.    Condition and appearance of Store                            5
       B.    Uniform image                                                5
       C.    Food and beverage products, supplies, and materials          5
       D.    Specifications, standards and procedures                     5

VI.    THE MARKS
       A.    Ownership and goodwill of Marks                              6
       B     Notification of infringements and claims                     7
       C.    Discontinuance of use of Marks                               7
       D.    Indemnification of Area Developer                            7

VII.   CONFIDENTIAL INFORMATION                                           7

VIII.  NON-COMPETITION                                                    8

IX.    RELATIONSHIP OF THE PARTIES/INDEMNIFICATION                        9

X.     INITIAL AREA DEVELOPMENT FEE                                       9

XI.    COMPENSATION TO AREA DEVELOPER                                    10




































                                       i
<PAGE>   3
XII.   ASSIGNMENT
       A.    By the Company                                              10
       B.    Area Developer may not assign without approval of the
             Company                                                     10
       C.    Guarantee of Shareholders                                   10
       D.    Effect of consent to assignment                             11

XIII.  RENEWAL OF AREA DEVELOPMENT AGREEMENT
       A.    Area Developer's right to renew                             11
       B     Notice of renewal and non-renewal                           11

XIV.   TERMINATION OF THE AREA DEVELOPMENT AGREEMENT
       A.    By the Area Developer                                       11
       B.    By the Company                                              12

XV.    RIGHTS OF THE COMPANY AND OBLIGATIONS OF AREA DEVELOPER
       UPON TERMINATION OR EXPIRATION OF THE AREA DEVELOPMENT
       AGREEMENT.
       A.    The Marks                                                   12
       B.    Confidential information                                    13
       C.    Covenant not to compete                                     13
       D.    Continuing Obligations                                      13
       E.    The Company's right to Appoint a New Area Developer         13
       F.    Ongoing compensation to Area Developer                      13

XVI.   ENFORCEMENT
       A.    Severability and substitution of valid provisions           14
       B.    Waiver of obligations                                       14
       C.    Force majeure                                               15
       D.    Specific performance/injunctive relief.                     15
       E.    Rights of parties are cumulative                            15
       F.    Costs and attorneys' fees                                   15
       G.    Governing law/consent to jurisdiction                       16
       H.    Binding effect                                              16
       I.    Construction                                                16
       J.    Notices and payments                                        16
















































                                      ii
<PAGE>   4
                         ALL AMERICAN FOOD GROUP, INC.
                          AREA DEVELOPMENT AGREEMENT


     This agreement is made and entered into this __________ day of
___________________ 19_______, by and between:

                                   All American Food Group Inc., a New Jersey
                                   corporation, with its principal place of
                                   business at 9 Law Drive, Fairfield, New
                                   Jersey 07006 (the "Company"), and


whose principal address is:        ______________________________

                                   ______________________________

                                   ______________________________
                                   ("the Area Developer").

     PREAMBLES

     The Company franchises certain food shops, known as Goldberg's Bagels
units ("Goldberg's"), and Sammy's New York Bagels, ("Sammy's"), (collectively
the "Retail Concepts"), which sell and serve a variety of freshly baked
bagels, served plain or with various toppings, sandwiches also served on
bagels, soups, salads, and other luncheon items, and a variety of soft drinks
and other beverages.  The Stores operate with and under uniform formats,
designs, systems, methods, specifications, standards and procedures, all of
which may be improved, further developed or otherwise modified from time to
time by the Company.  Such units are operated under or associated with certain
trademarks, service marks, logos, and other commercial symbols which the
Company may modify from time to time, (collectively the "Marks"), and are
operated pursuant to the Company's proprietary and confidential information
and trade secrets.

     In addition to granting Franchise Agreements to own and operate units
offering the products and services approved by the Company and utilizing the
Company's formats, designs, methods, systems, standards, operating procedures,
and the Marks, to persons who meet the Company's qualifications and who are
willing to undertake the investment and effort to establish and develop bagel
stores, the Company also grants to certain individuals or other entities which
meet higher financial and other criteria, the right to operate as exclusive
Area Developers of the Company's bagel concepts for specified territories,
subject to the terms and conditions outlined herein.

I.   ACKNOWLEDGMENTS AND REPRESENTATIONS

     Area Developer acknowledges that he has read this Agreement and the
Company's Uniform Franchise Offering Circular and that he understands and
accepts the terms, conditions and covenants contained in this Agreement as
being reasonably necessary to maintain the Company's high standards of quality
and service, and the






























                                       1
<PAGE>   5
uniformity of those standards in order to protect and preserve the goodwill of
the Marks.  Area Developer acknowledges that he has conducted an independent
investigation of the business contemplated by this Agreement and recognizes
that, like any other business, the nature of the business conducted by the
Company may evolve and change over time, that an investment in an Area
Development Agreement involves business risks, and that the success of the
venture is largely dependent upon the business abilities and efforts of Area
Developer.

     The Company expressly disclaims the making of, and Area Developer
acknowledges that he has not received or relied upon any warranty or guaranty,
express or implied, as to the revenues, profits, or success of the business
venture contemplated by this Agreement.  Area Developer acknowledges that he
has not received or relied on any representations of the Company, or its
officers, directors, employees or agents, relating to the business venture
contemplated by this Agreement that are inconsistent with the statements made
in the Company's Uniform Franchise Offering Circular or to the terms herein.
Area Developer further represents to the Company, that Area Developer has made
no misrepresentations in obtaining the Area Development rights granted under
this Agreement.

     Area Developer has applied for the right to develop the Retail Concepts
of the Company for the territory specified herein, and such application has
been approved by the Company in reliance upon all the representations made in
such application.

II.  GRANT OF AREA DEVELOPMENT RIGHTS

     A.   Term of Area Development Agreement

     Subject to the provisions contained herein, while this Agreement is in
effect, the Company grants to Area Developer, the right to serve as the
Company's exclusive developer within the Territory described in Paragraph C of
this Section, ("the Territory"), to develop said Territory through the
ownership and operation of Franchised Units owned by the Area Developer and
through the development of stores owned and operated by sub franchisee of Area
Developer, for a term of ten (10) years, commencing on the date of this
Agreement.  Termination or expiration of this Agreement shall constitute a
termination or expiration of the Area Development rights granted herein.

     B.   Rights reserved by the Company

     The Company (on behalf of itself and its affiliates) retains the right,
in its sole discretion and without granting any rights to Area Development:
(a) to itself operate, or to grant other persons the right to operate retail
store at such locations and on such terms and conditions as the Company deems
appropriate, subject, however, to the provisions of Paragraph C of Section II
hereof; and, (b) to sell the products and services authorized for sale at
retail stores using the Marks or other trademarks and service marks, through
other channels of distribution pursuant to such terms and conditions as the
Company deems appropriate.

     C.   The Territory

     For the purposes of this Agreement, the Territory shall consists of the
following:



























                                       2
<PAGE>   6
III. OBLIGATIONS OF THE AREA DEVELOPER

     The Area Developer shall perform the following functions, in all cases in
accordance with the procedures established by the Company relating to such
functions.

     A.   Development of the Territory

     The Area Developer shall develop the Territory in accordance with the
Area Development schedule included as Appendix A and aftached to this
Agreement.  Failure of Area Developer to maintain the Development schedule
shall constitute a default under this Agreement, and permit the Company to
cancel this Agreement as provided herein.

     In developing the Territory the Area Developer shall assist the Company
in locating and selecting qualified store franchisees for the operation of
retail bagel stores within the Territory.  Area Developer shall be responsible
for advertising for such franchisees, (using only material approved for said
purpose by the Company), for purchasing from the Company material used in the
sales presentation, and for all expenses incurred in assisting the Company in
this function.  Area Developer expressly acknowledges, however, that he is not
acting in the capacity of Franchiser, and that the Company shall retain the
sole and exclusive right to appoint Franchisees within the territory.

     B.   Assistance to Local Franchises

     After appointment of a local franchisee by the Company, Area Developer
shall be responsible for assisting the franchisee in the following areas, in
all cases in accordance with procedures and materials provided to Area
Developer by the Company.

          a)   Selection of a suitable site for the location of franchisee's
               store;

          b)   Negotiation of a lease for franchisee's site;

          c)   Preparation of store layout, design work, and equipment order;

          d)   Selection of contractors for the construction of franchisee's
               store;

          e)   Supervision of construction of franchise's store;

          f)   Supervision preopening activities;

     C.   Initial Training

     Approximately 4 weeks before the opening of each franchisee's store, Area
Developer shall be responsible for the training of each Franchisee and
Franchisee's store manager, in accordance with the training syllabus and
material furnished to Area Developer by the Company.  Said training shall be
furnished to Franchisees in accordance with the Company's store Franchise
Agreement, and shall be conducted at Area Developer's own store, which Area
Developer shall maintain at all times in a manner consistent with the
requirements of this section.

     D.   Ongoing Responsibilities

     For all the stores operated within the territory, whether owned by Area
Developer or an affiliate thereof, or by a sub franchisee of Area Developer,
Area Developer shall have the following responsibilities, in all cases to be
carried out in fulfillment of Franchiser's





















                                       3
<PAGE>   7
obligations under the Franchise Agreement, and in accordance with the
procedures for such activity promulgated by the Company for each function.

          a)   Monitor compliance with all operating procedures and policies;

          b)   Distribute all promotional and merchandising programs developed
     by the Company and forwarded to Area Developer for such distribution;

          c)   When requested by the Company, assist in the monitoring of all
     royalty and other payments due the Company pursuant to the Franchise
     Agreement;

          d)   Perform any ongoing training functions required by the
     Franchise Agreement;

          e)   Generally serve as the Company's representative in the
     Territory;

IV.  TRAINING AND OPERATING ASSISTANCE

     A.   Training

     Prior to the opening of each Store opened in the Territory after the
initial store, the Area developer shall provide to the owner or manager of
such store, an initial training program in the operation of a retail bagel
store, as required by the Franchise Agreement, and as developed by the
Company.  The Area Developer shall be solely responsible for the costs and
expenses incurred in connection with the conduct of such initial training
programs, except for those expenses which the Franchise Agreement designates
as the responsibility of the Franchisee.

     Subsequent to the opening of each Store, the Area Developer will provide
such additional supplemental and refresher training programs as required by
the Franchise Agreement, and Area Developer shall be solely responsible for
all expenses incurred in connection with the conduct of such supplemental or
refresher training programs.

     B.   Operating assistance

     The Area Developer shall monitor the performance of all stores in the
territory with respect to compliance with the operating procedures and
policies promulgated by the Company, and shall furnish to all stores within
the Territory such guidance and assistance in connection with the operation of
the Store as is from time to time deemed appropriate by the Company.
Operating assistance may consist of advice and guidance with respect to:

          (1)  the standards, methods, and operating procedures utilized by
     the Retail Concept;

          (2)  the preparation of food, beverages, and other products and
     services authorized for sale in the Retail Concept;

          (3)  the selection, purchase, and preparation of food and beverage
     products, and the purchase of other approved products, fixtures,
     equipment, signs, materials, and supplies; and

          (4)  the formulation and implementation of advertising and
     promotional programs.

     Such guidance shall be furnished in such manner as the Company develops
and modifies for the use of Area Developers in carrying out their
responsibilities under this Agreement.





















                                       4
<PAGE>   8
V.   STORE IMAGE AND OPERATING STANDARDS

     A.   Condition and appearance of Store

     Area Developer agrees that all stores in the Territorv will maintain the
condition and appearance of the Store consistent with the image oi the Retail
Concept as an attractive, clean, and efficiently operated unit, offering high
quality products, efficient and courteous service, and pleasant ambiance.  In
connection therewith, for all Stores within the Territory, Area Developer
shall monitor and report on the cleanliness and sanitation of all Store
premises, disposal of stale, spoiled, or unmerchantable food products,
replacement of worn out or obsolete fixtures, equipment, furniture, signs, and
utensils; repair of the interior and exterior of all Stores, and periodic
painting of all Store premises in accordance with the decor prescribed by the
Company.

     If at any time in the Area Developer's judgment, the general state or
repair, appearance, or cleanliness of the premises of any Store in the
Territory, or its fixtures, equipment, furniture, signs, or utensils does not
meet the Company's standards, the Area Developer shall so notify the Company,
using such forms as the Company has provided for such reporting.

     B.   Uniform image

     The presentation of a uniform image to the public is an essential element
of a successful Franchise system.  Area Developer therefore agrees to monitor
the placement or display at all Store premises of all signs, emblems,
lettering, logos, and display and advertising materials, to insure that such
have been approved in writing by the Company, and to insure that the products
offered for sale at the Stores are only such types of food and beverage
products and services as have been approved by the Company in its capacity as
Franchiser.

     C.   Food and beverage products, supplies, and materials

     The reputation and goodwill of the Retail Concepts is based upon, and can
be maintained only by the sale of distinctive, high quality products and
services.  Area Developer therefore agrees to monitor the Stores in the
Territory to insure that they use only those ingredients in the preparation of
food and beverage products, prepare and offer for sale only those food and
beverage products, use only those plates, cups, utensils, uniforms, menus,
forms, packaging materials, labels, and other supplies, and use or offer for
sale only those other products and services which conform to the Company's
specifications and quality standards and are purchased from suppliers approved
by the Company pursuant to a list of approved products and approved suppliers
provided to Area Developer by the Company.

     D.   Specifications, standards, and procedures

     Area Developer acknowledges and agrees that each and every detail of the
appearance and operation of the Stores is important to the Company and the
Retail Concept.  The Area Developer shall assist the Company in maintaining
high standards of quality and service at all units, and, accordingly, agrees
that all Stores in the Territory shall comply with all mandatory
specifications, standards, and operating procedures (whether contained in the
Operating Manual or any other written communication to Area Development)
relating to the appearance or operation of a Retail unit, including, without
limitation:

          (1)  type, quality, taste, appearance, weight and dimensions,
          ingredients, uniformity, manner of preparation and sale of all food,
          beverages, and other 





















                                       5
<PAGE>   9
          products sold by the Store, and all other products used in the
          packaging and sale thereof;

          (2)  the safety, maintenance, cleanliness, sanitation, function, and
          appearance of all Store premises and their fixtures, equipment,
          furniture, decor, and signs;

          (3)  qualifications, dress, general appearance, and demeanor of
          Store employees;

          (4)  use of the Marks;

          (5)  use, display and illumination of signs, posters, displays,
          menus, menu boards, standard formats, and similar items;

          (6)  identification of each Franchisee as the independent owner of
          each Store;

          (7)  advertising and promotional material.

     Mandatory specifications, standards, and operating procedures prescribed
from time to time by the Company in the Operating Manual, or otherwise
communicated to Franchisees in writing, shall constitute provisions of each
Franchise Agreement, and monitoring the compliance therewith shall become part
of the responsibility of the Area Developer.

VI.  THE MARKS

     A.   Ownership and goodwill of Marks

     Area Developer acknowledges that the Company owns the Marks and all
rights therein.  Area Developer further acknowledges that Area Developer's
right to use the Marks is derived solely from this Agreement and is limited to
the conduct of his business pursuant to and in compliance with this Agreement
and all applicable specifications, standards, and operating procedures
prescribed by the Company from time to time during the term of the Area
Development Agreement Any unauthorized use of the Marks by Area Developer
shall constitute a breach of this Agreement and an infringement of the rights
of the Company in and to the Marks.

     Area Developer agrees that all usage of the Marks by Area Developer and
any goodwill established thereby shall inure to the exclusive benefit of the
Company, and Area Developer acknowledges that this Agreement does not confer
any goodwill or other interests in the Marks upon Area Developer.

     All provisions of this Agreement applicable to the Marks shall apply to
any additional trademarks, service marks, logos, and commercial symbols
hereafter authorized for use by and licensed to Area Developer by the Company.

     During the term of this Agreement and after termination or expiration
hereof, Area Development agrees not to dispute or contest, for any reason
whatsoever, directly or indirectly, the validity, ownership, or enforceability
of any of the Marks; or to counsel, procure, or assist anyone else to do the
same; nor directly or indirectly attempt to dilute the value of the good will
attaching to the Marks; nor counsel, procure, or assist anyone else to do the
same.



























                                       6
<PAGE>   10
     B.   Notification of infringements and claims

     Area Developer shall immediately notify the Company in writing of any
apparent infringement of, or challenge to, any mark, or claim by any person of
any rights in any Mark or any similar trade name, trademark, or service mark
of which Area Developer becomes aware.  Area Developer shall not communicate
with any person other than the Company and its counsel in connection with any
such infringement, challenge, or claim.  The Company shall have sole
discretion to take such actions as it deems appropriate and the right to
exclusively control any litigation, U.S. Patent and Trademark Office
proceeding, or other administrative or judicial proceeding arising out of any
such infringement, challenge, or claim relating to any Mark.  Area Developer
agrees to execute any and all instruments and documents, render such
assistance, and do such acts and things as may, in the opinion of the
Company's counsel, be necessary or advisable to protect and maintain the
interests of the Company in any such litigation, U.S. Patent and Trademark
Office proceeding, or other administrative proceeding, and to otherwise
protect and maintain the interests of the Company in the Marks.

     C.   Discontinuance of use of Marks

     If it becomes advisable at any time, in the Company's sole discretion,
for the Company, the Area Developer, or both, to modify or discontinue use of
any Mark, or use one or more additional or substitute trademarks or service
marks, the Company will so direct Area Developer, and Area Developer agrees,
at its own expense, to comply with such direction within a reasonable time
after receipt of such direction.

     D.   Indemnification of Area Developer

     The Company agrees to indemnify Area Developer against, and to reimburse
Area Developer for all damages for which he is held liable in any proceeding
arising out of Area Developer's authorized use of any Mark pursuant to and in
compliance with this Agreement, and for all costs reasonably incurred by Area
Developer in the defense of any such claim brought against him or in any such
proceeding in which he is named as a party, provided that Area Developer has
timely notified the Company of such claim or proceedings, and has otherwise
complied with this Agreement.

VII. CONFIDENTIAL INFORMATION

     The Company possesses certain confidential and proprietary information,
consisting of the following categories of information, methods, techniques,
procedures, and knowledge acquired by or developed by, for, or on behalf of
the Company (the "Confidential Information"):

          (1)  ingredients, recipes, and methods of preparation of certain
     food and beverage products sold at and through the Retail Concepts;

          (2)  methods, techniques, formats, specifications, procedures,
     information, systems, and knowledge of and experience in, the operation
     and franchising of retail bagel stores;

          (3)  sources of food and beverage products, and supplies for the
     preparation and serving of food and beverage products;

          (4)  programs and concepts for the marketing of bagels and the
     franchising of bagel stores;

          (5)  designs, concepts, architectural and other plans, and other
     information relating to the appearance and image of the Retail Concepts;






















                                       7
<PAGE>   11
          (6)  training programs and techniques for, and knowledge relating
     to, the selection of managers and employees of the Retail Concepts; and

          (7)  knowledge and information relating to the planning,
     development, and testing of new food, beverages, or other items for
     possible sale at the Retail Concepts;

     During the term of this Agreement, the Company will disclose the
Confidential Information to Area Developer in providing Area Developer with
the guidance and assistance required to discharge his responsibilities under
this Agreement.

     Area Developer acknowledges and agrees that no interest in the
Confidential Information has or will be acquired by Area Developer, other than
the right to utilize it in discharging the responsibilities of this Agreement,
while this Agreement is in effect,, and that the use or duplication of the
Confidential Information in any other business would constitute an unfair
method of competition.  Area Developer acknowledges and agrees that the
Confidential Information is proprietary and involves trade secrets of the
Company, and is disclosed to Area Developer solely on the condition that Area
Developer agrees, and Area Developer does hereby agree:

          (1)  not to use the confidential information in any other business
     or capacity;

          (2)  to maintain the absolute confidentiality of the Confidential
     Information during and after the term of the Area Development;

          (3)  not to make unauthorized copies of any portion of the
     Confidential Information disclosed in wriften form; and

          (4)  to adopt and implement all reasonable procedures prescribed
     from time to time by the Company to prevent unauthorized use or
     disclosure of the Confidential Information, including, without
     limitation, restrictions on disclosure thereof to employees of the Store,
     and the use of non-disclosure and noncompetition clause in employment
     agreements with employees who have access to the Confidential
     Information.

VIII. NON-COMPETITION

     Area Developer acknowledges and agrees that the Company would be unable
to protect its trade secrets against unauthorized use, and would be unable to
encourage a free exchange of ideas and information among Franchisees of the
Retail Concepts if Area Developers were permitted to hold interests in any
competitive businesses.  Therefore, during the term of the Area Development
Agreement, neither Area Developer, any shareholder or partner (if Area
Developer is a corporation or partnership), nor any member of his or their
households, shall have any interest as an owner, investor, partner, director,
officer, employee, consultant, representative, or agent, or in any other
capacity, in any other restaurant or carry-out business serving or selling
bagels or other baked goods, sandwiches, or any other restaurant or business
selling products or providing services substantially similar to the products
and services sold by or through the Retail Concepts, except for other stores
operating under Franchise Agreements with the Company, and the ownership of
securities listed on a stock exchange or traded on the over-the -counter
market that represent five percent (5%) or less of that class of securities.


























                                       8
<PAGE>   12
IX.  RELATIONSHIP OF THE PARTIES/INDEMNIFICATION

     It is understood and agreed by the parties hereto that this Agreement
does not create a fiduciary relationship between them, that the Company and
Area Developer shall be independent contractors and that nothing in this
Agreement is intended to make either party a general or special agent, legal
representative, subsidiary, joint venturer, partner, employee, or servant of
the other for any purpose.

     The Company has not authorized or empowered Area Developer to use the
Marks except as provided by this Agreement, and Area Developer shall not
employ any Mark in signing any contract, lease, mortgage, check, purchase
agreement, negotiable instrument, or other legal obligation without the prior
written consent of the Company, or employ any Mark in a manner that is likely
to result in liability to the Company for any indebtedness or obligation of
Area Developer.

     Except as expressly authorized by this Agreement, neither the Company nor
Area Developer shall make any express or implied agreements, guaranties or
representations, or incur any debt, in the name of or on behalf of the other,
or represent that their relationship is other than Franchiser and Area
Developer.  Neither the Company nor Area Developer shall be obligated by, or
have any liability under, any agreements or representations made by the other
that are not expressly authorized hereunder, nor shall the Company be
obligated for any damages to any person or property directly or indirectly
arising out of the development of the Territory pursuant to this Agreement,
whether or not caused by Area Developer's negligent or willful action or
failure to act.

     Area Developer agrees to indemnify and hold harmless the Company and its
affiliates, stockholders, directors, officers, employees, agents and
assignees, from and against any claims, suits, actions, losses, liability,
taxes, or damages (actual or consequential), and all reasonable costs and
expenses in connection with the defense of any claim brought against any of
them or any action in which any of them is named as a party, (including,
without limitation, reasonable accountants', attorneys' and expert witness
fees, cost of investigation, and proof of facts, court costs, other litigation
expenses, and travel and living expenses) which any of them may suffer,
sustain, or incur by reason of, arising from, or in connection with, Area
Developer's activities in connection with this Agreement.

     The indemnities and assumption of liabilities and obligations herein
shall continue in full force and effect subsequent to and notwithstanding the
expiration or termination of this Agreement.

X.   INITIAL AREA DEVELOPMENT FEE

     Area Developer shall pay to the Company a non-recurring initial Area
Development fee of _______________________________________________________. 
The initial Area Development fee shall be payable and fully earned by the
Company upon execution of this Agreement and shall be non-refundable.

     Upon payment of the above fee and execution of this Agreement, Area
Developer shall become the Company's sole and exclusive representative in the
Territory, responsible for the carrying out the duties outlined herein, and
eligible to receive the compensation outlined below.

XI.  COMPENSATION TO AREA DEVELOPER

























                                       9
<PAGE>   13
     During the term of this Agreement, and provided Area Developer is in
compliance with this Agreement and all other Franchise, Development, and other
Agreements with the Company, then , as full compensation for providing the
services described in this Agreement, Area Developer shall receive as
compensation, the following percentage of the fees received by the Company in
the Territory:

               Franchise Fees                50%
               Royalties                     50%

     Area Developer shall not be entitled to, and expressly disclaims any
rights to, any additional fees or compensation from the Company, or any
affiliate of the Company, whether from fees received by the Company for its
Promotional Fund, for the sale of any equipment or other product, or from any
other source whatever.

     The Company shall remit Area Developer's portion of the above fees to
Area Developer within 30 days of receipt of such fees by the Company, and, in
the event the Note described in Section X above is outstanding, the Company
shall first deduct from compensation earned under this Section, any repayment
required under such Note.

XII. ASSIGNMENT

     A.   By the Company

     This Agreement is fully assignable by the Company and shall inure to the
benefit of any Assignee or other legal successor to the interest of the
Company.

     B.   Area Developer may not assign without approval of the Company

     Area Developer understands and acknowledges that the rights and duties
created by this Agreement are personal to Area Developer, and that the Company
has granted the Area Development rights contained in this Agreement, in
reliance upon the individual or collective character, skill, aptitude,
attitude, business ability, and financial capacity of Area Developer (or its
shareholders or partners, if Area Developer is a corporation or partnership). 
Therefore, the Area Developer, nor any interest therein, nor any part or all
of the ownership of the Area Development rights contained herein, may be
voluntarily, involuntarily, directly or indirectly, assigned, sold,
subdivided, sub Franchised, or otherwise transferred by Area Developer or its
owners, without the prior written approval of the Company.  Any such
assignment or transfer without such approval shall constitute a breach hereof
and shall convey no rights to or interests in the Area Development Agreement,
or the Area Development rights contained in this Agreement.

     C.   Guarantee of shareholders

     Any person who becomes a shareholder of Area Developer during the term of
the Area Development Agreement shall execute an agreement in a form furnished
or approved by the Company undertaking to be personally bound jointly and
severally by all provisions of the Agreements relating to confidential
information and non competition.  Area Developer shall furnish to the Company
at any time upon request a certified copy of the articles of incorporation and
a list, verified as being true and correct and in such form as the Company may
require, of all shareholders of record reflecting their respective interests
in the Area Developer Agreement, and the Development rights therein.

























                                      10
<PAGE>   14
     D.   Effect of consent to assignment

     The Company's consent to an assignment by Area Developer (or its owners)
of any interest subject to the restrictions of this Section Xill shall not
constitute a waiver of any claims it may have against Area Developer (or any
of its owners), nor shall it be deemed a waiver of the Company's right to
demand exact compliance with any of the terms or conditions of the Area
Development Agreement by the Assignee.

XIII. RENEWAL OF AREA DEVELOPMENT

     A.   Area Developers right to renew

     Area Developer shall have the right to renew this Agreement for two
successive five (5) year terms, if upon expiration of the initial or first
renewal term of the Area Development Agreement, Area Developer is;

          (1)  in compliance with all aspects of the Area Development
Agreement, specifically including the Development Schedule contained herein;

          (2)  in compliance with all Store franchise Agreements and other
Agreements between the Company and the Area Developer and its affiliates;

          (3)  able to demonstrate to the satisfaction of the Company that it
has the ability to continue to discharge its responsibilities under the Area
Development Agreement;

     If the foregoing provisions have been met, then Area Development shall,
upon the terms and conditions herein contained, have the right to renew the
Area Development for two (2) successive five (5) year terms, without the
payment of any renewal fee.

     B.   Notice of renewal and non-renewal

     If Area Developer desires to renew the Area Development Agreement then
Area Developer shall give the Company written notice of his exercise of his
option to renew at least one hundred eighty (180) days, but not more than one
(1) year, prior to the expiration of the term of the Agreements.  The Company
agrees to give Area Developer wriften notice of its determination whether or
not Area Developer has the right to renew the Area Development Agreement by
the later of one hundred eighty (180) days prior to the expiration of the term
of this Agreement, or thirty (30) days after the Company's receipt of such
wriften notice of exercise of such option to renew.  A notice of non-renewal
by the Company shall state the reasons for the Company's refusal to renew.

XIV. TERMINATION OF THE AREA DEVELOPMENT AGREEMENT

     A.   By the Area Development

     Area Developer may cancel this Agreement at any time by providing wriften
notice to the Company 60 days prior to such cancellation.  Upon expiration of
such notice period, this Agreement shall of no further force and effect, and
Area developer shall no longer be responsible to discharge the
responsibilities hereunder, and shall receive no further compensation from the
Company;

     Area Developer acknowledges, however, that those provisions of this
Agreement that by their nature survive the cancellation of this Agreement,
including without limitation the non competition and confidentially provisions
hereof, shall continue in full force and effect after such cancellation.























                                      11
<PAGE>   15
     B.   By the Company

     The Company shall have the right to terminate this Agreement effective
upon delivery of notice of termination to Area Developer if Area Developer or
any of its shareholders or partners, if Area Developer is a corporation or
partnership,

          (1)  fails to open the initial Store for business as provided in
     Paragraph B or D of Section 3 of this Agreement;

          (2)  has failed, as of any anniversary date of this Agreement, to
     maintain the Development Schedule in this Agreement;

          (3)  has made any material misrepresentation or omission in its
     application for the Area Development Agreement;

          (4)  is convicted of or pleads no contest to a felony or any crime
     or offense that may adversely affect the reputation of the Retail
     Concepts or the goodwill associated with the Marks;

          (5)  fails to provide to any of the Stores in the Territory, any of
     the services provided for in this Agreement;

          (6)  makes an unauthorized assignment or transfer of this Agreement,
     or any ownership interest in the Area Development rights;

          (7)  makes any unauthorized use of the Marks or unauthorized use or
     disclosure of Operating Manual or any other Confidential Information;

          (8)  fails or refuses to comply with any mandatory specification,
     standard or operating procedure prescribed by the Company relating to the
     cleanliness or sanitation of the Stores;

          (9)  fails to discharge his responsibilities under this or any other
     Development or Franchise Agreement with the Company; or

          (10) is or becomes insolvent, or in the event a voluntary or
     involuntary petition for bankruptcy, with Area Developer as debtor, is
     filed under the United States Bankruptcy code or any similar law, or if
     Area Developer makes an assignment for the benefit of creditors,;

XV.  RIGHTS OF THE COMPANY AND OBLIGATIONS OF AREA DEVELOPER 
     UPON TERMINATION OR EXPIRATION OF THE AREA DEVELOPMENT 
     AGREEMENT

     A.   The Marks

     Area Developer agrees that after the termination or expiration (without
     renewal) of the Area Development Agreement:

          (1)  Area Developer (and all owners thereof) shall not directly or
     indirectly at any time or in any manner identify himself or any business
     as a current or former Area Developer of the Company, or use the Marks,
     any colorable imitation thereof or other indicia of the Retail Concepts
     in any manner or for any purpose, or utilize for any purpose material
     that suggests or indicates a connection or association with the Company,
     other than the operation of a Retail Store operating under a Franchise
     Agreement with the Company.

























                                      12
<PAGE>   16
          (2)  Area Developer will promptly take such action as may be
     required to cancel all fictitious or assumed names, or equivalent
     registrations relating to the use of the Marks;

     B.   Confidential information

     Area Developer agrees that upon termination or expiration without renewal
of the Area Development Agreement, he will immediately cease to use the
Confidential Information relating to Franchising, or the operation of a
Franchise System, in any business or otherwise, and return to the Company all
copies of the Operating Manual and other material which have been loaned to
him by the Company, except as may still be required by Area Developer in the
operation of a Retail Store operating under a valid Franchise Agreement with
the Company.

     C.   Covenant not to compete

     Area Developer (and its shareholders, directors, and officers, if Area
Developer is a corporation, or its partners, if Area Developer is a
partnership) agrees that for a period of two (2) years following the
termination or expiration (without renewal) of this Agreement, Area Developer
(and if Area Development is a corporation or a partnership, its shareholders,
directors, officers, partners, and members of their immediate families) will
not have any interest, directly or indirectly, as an owner, partner, director,
officer, employee, consultant, representative or agent, or in any other
capacity, in any business engaged in the franchising, licensing, or other
expansion of any retail concept substantially similar to the business of the
Company, other than the ownership of securities traded on a stock exchange or
on the over-the-counter market that represent five percent (5%) or less of
that class of securities.

     D.   Continuing obligations

     All obligations of the Company and Area Developer which expressly or by
their nature survive the expiration or termination of this Agreement,
including, without limitation, the provisions of Section 8 and Paragraph D of
Section 17, shall continue in full force and effect subsequent to and
notwithstanding its expiration or termination, until they are satisfied or by
their nature expire.

     E.   The Company's Right to Appoint a New Area Developer

     Upon the termination or expiration of this Agreement, Area Developer
expressly acknowledges the right of the Company to appoint a new Area
Developer in the Territory, under such terms and conditions as the Company
deems appropriate.

     F.   On Going Compensation to Area Developer

     Subsequent to the termination or expiration of this Agreement, Area
Developer's right to compensation from the fees and royalties generated within
the Territory shall cease, except that, in the event that the Company elects
to terminate the Agreement pursuant to paragraph B. (2) of Section XV of this
Agreement, and the Area Developer is otherwise capable of continuing to
discharge his responsibilities under this Agreement with respect to stores
already established in the Territory,, then Area Developer shall continue to
provide such services, and shall continue to be compensated for such.  In such
events, those provisions of this Agreement which by their nature are necessary
for the implementation of this paragraph shall survive the termination of this
Agreement.

     The provisions of this paragraph in no way limit the Company's right to
appoint a new Area Developer in the Territory, provided, however, that, in the
event the provisions of this paragraph are in effect, any such new Area
Developer shall have no responsibility for stores operating at the time of
termination of Area Developer.

















                                      13
<PAGE>   17
XVI. ENFORCEMENT

     A.   Severability and substitution of valid provisions

     Except as expressly provided to the contrary herein, each section,
paragraph, term, and provision of this Agreement, and any portion thereof,
shall be considered severable, and if, for any reason, any such portion of
this Agreement is held to be invalid, contrary to, or in conflict with any
applicable present or future law or regulation by any court, agency, or
governmental authority of competent jurisdiction, that ruling shall not impair
the operation of, or have any other effect upon, this Agreement, unless the
Company has been a party to such proceeding, and until such ruling has been
affirmed in an unappealable ruling of a reviewing court or body, or the time
for any such appeal has expired (or upon Area Developer's receipt of written
notice of non-enforcement of such provision from the Company), from and after
which time such other portions of this Agreement as may remain otherwise
intelligible shall continue to be given full force and effect and bind the
parties hereto, and any portion held to be invalid shall be deemed not to be a
part of this Agreement.

     To the extent that any provision hereof is deemed unenforceable by virtue
of its scope in terms of area, length of time, or nature of prohibited
activity, but can be made enforceable by limitations upon such scope, then
Area Developer and the Company agree that such provisions shall be enforced to
the full extent permissible under the laws and public policies of the
jurisdiction in which enforcement is sought.  If any applicable and binding
law, or rule of any jurisdiction requires a greater prior notice of the
termination of or non-renewal of this Agreement than is required hereunder, or
the taking of some other action not required hereunder, or if under any
applicable and binding law or rule of any jurisdiction, any provision of this
Agreement or any specification, standard, or operating procedure prescribed by
the Company is invalid or unenforceable, the prior notice or other action
required by such law or rule shall be substituted for the comparable
provisions hereof, and the Company shall have the right, in its sole
discretion, to modify such invalid or unenforceable provision, specification,
standard, or operating procedure to the extent required to be valid and
enforceable.  Area Developer agrees to be bound by any promise or covenant
imposing the maximum duty permitted by law which is subsumed within the terms
of any provision hereof, as though it were separately articulated in and made
a part of this Agreement, that may result from striking from any of the
provisions hereof, or any specification, standard, or operating procedure
prescribed by the Company, any portion or portions of which a court may hold
to be unenforceable in a final decision to which the Company is a party, or
from reducing the scope of any promise or covenant to the extent required to
comply with such a court order.  Such modifications to this Agreement shall be
effective only in such jurisdiction, unless the Company elects to give them
greater applicability, and this Agreement shall be enforced as originally made
and entered into in all other jurisdictions.

     B.   Waiver of obligations

     The Company and Area Developer may each by written instrument
unilaterally waive or reduce any obligation of or restriction upon the other
under this Agreement, effective upon delivery of written notice thereof to the
other or such other effective date stated in the notice of waiver.  Whenever
this Agreement requires the Company's prior approval or consent, Area
Developer shall make a timely written request therefore, and such approval
shall be obtained in writing.

     The Company makes no warranties or guaranties upon which Area Developer
may rely, and assumes no liability or obligation to Area Developer, by
granting any waiver, approval or consent to Area Developer, or by reason of
any neglect, delay, or denial of any request therefor.  Any waiver granted by
the Company shall be without prejudice to any other rights the Company may
have, will be subject to continuing review 


















                                      14
<PAGE>   18
by the Company, and may be revoked, in the Company's sole discretion, at any
time and for any reason, effective upon delivery to Area Developer ten (1 0)
days' prior written notice.

     The Company and Area Developer shall not be deemed to have waived or
impaired any right, power, or option reserved by this Agreement (including,
without limitation, the right to demand exact compliance with every term,
condition, and covenant herein, or to declare any breach thereof to be a
default and to terminate the Area Developer prior to the expiration of its
term), by virtue of any custom or practice of the parties at variance with the
terms hereof; any failure, refusal, or neglect of the Company or Area
Developer to exercise any right under this Agreement, or to insist upon the
other's exact compliance with its obligation hereunder, including, without
limitation, any mandatory specification, standard, or operating procedure; any
waiver, forbearance, delay, failure, or omission by the Company to exercise
any right, power or option, whether of the same, similar of different nature,
with respect to other Area Developer Agreements.

     C.   Force majeure

     Neither the Company nor Area Developer shall be liable for loss or damage
or deemed to be in breach of this Agreement if its failure to perform its
obligations hereunder results from transportation shortages, inadequate supply
of labor, materials, or energy; compliance with any law, ruling, order,
regulation, requirement, or instruction of any federal, state, or municipal
government, or any department or agency thereof (other than a judgment for the
payment of money); acts of God, acts or omissions of the other party; fires,
strikes, embargoes, war, or riot; or any other similar event or cause.  Any
delay resulting from any of said causes shall extend performance accordingly
or excuse performance, in whole or in part, as may be reasonable.

     D.   Specific performance/injunctive relief

     Nothing herein contained shall bar the Company's or the Area Developer's
right to obtain specific performance of the provisions of this Agreement and
to obtain injunctive relief against threatened conduct that will cause it
irreparable loss or damage under customary rules of equity.  Area Developer
agrees that the Company may have such injunctive relief, without bond, but
upon due notice, in addition to such further and other relief as may be
available at equity or law, and the sole remedy of Area Developer, in the
event of any improper or wrongful entry of such injunction, shall be the
dissolution of such injunction upon hearing duly had, all claims for damages
by reason of the wrongful issuance of any such injunction being expressly
waived hereby.

     E.   Rights of parties are cumulative

     The rights of the Company and Area Developer hereunder are cumulative,
and no exercise or enforcement by the Company or Area Developer of any right
or remedy hereunder shall preclude the exercise or enforcement by the Company
or Area Developer of any other right or remedy hereunder, which the Company or
Area Developer is entitled by law or equity to enforce.

     F.   Costs and attorneys' fees

     If a claim for amounts owed by Area Developer to the Company or its
affiliates is asserted in any legal proceeding before a court of competent
jurisdiction, or if the Company or Area Developer is required to enforce this
Agreement in a judicial proceeding, the party prevailing in such proceeding
shall be entitled to reimbursement of its costs and expenses, including
reasonable accounting and legal fees, incurred in connection with such
proceeding.

     G.   Governing law/consent to jurisdiction



















                                      15
<PAGE>   19
     Except to the extent governed by the United States Trademark Act of 1946,
as amended (Lanham Act, 15 U.S.C. Sections 1051 et seq.), or any other
applicable federal law, this Agreement shall be governed by the laws of the
State of New Jersey.  This Agreement is made at Fairfield, New Jersey.  Area
Developer agrees that the Company may institute any action against Area
Developer arising out of or relating to this Agreement in any state or federal
court of general jurisdiction in the State of New Jersey, and Area Developer
irrevocably submits to the jurisdiction of such court and waives any objection
he may have to either the jurisdiction or venue of such court.

     H.   Binding effect

     This Agreement is binding upon the parties hereto and their respective
executors, administrators, heirs, assigns, and successors in interest, and
shall not be modified except by written agreement signed by both Area
Developer and the Company.

     I.   Construction

     The preambles and exhibits hereto are a part of this Agreement.  This
Agreement constitutes the entire Agreement of the parties, and there are no
other oral or written understandings or Agreements between the Company and
Area Developer relating to the subject mafter of this Agreement.

     Except as otherwise expressly provided herein, nothing in this Agreement
is intended, nor shall be deemed to confer any rights or remedies upon any
person or legal entity not a party hereto.

     Except where this Agreement expressly obligates the Company not to
unreasonably withhold its approval of any action or request of Area Developer,
the Company has the absolute right to grant or withhold such approval or grant
or refuse such request in its sole and absolute discretion.

     The heading of the several sections and paragraphs hereof are for
convenience only and do not define, limit, or construe the contents of such
sections or paragraphs.

     The term "Area DevelopeC'as used herein is applicable to one or more
persons, a corporation or a partnership, as the case may be; the singular
usage includes the plural and vice versa; and the feminine, masculine, and
neuter usages each includes the other usages.  If two or more persons or
entities are at any time Area Developers hereunder, as partners, joint
venturers, or otherwise, their obligations and liabilities to the Company
shall be joint and several.  References to "Area Developer," "Owner,"
"Transferee," or "Assignee" which are applicable to an individual or
individuals shall mean the owner or owners of the equity or operating control
of Area Developer or the transferee or Assignee, if Area Developer or the
Assignee is a corporation or partnership.

     This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original.

     J.   Notices and payments

     All written notices and reports permitted or required to be delivered by
the provisions of this Agreement or of the Operating Manual, shall be deemed
so delivered at the time delivered by hand, one (1) business day after sending
by telegraph or comparable electronic system or by U.S. Express Mail or
comparable private commercial overnight carrier service, or three (3) business
days after placed in the U.S. mail by Registered or Certified Mail, Return
Receipt Requested, postage prepaid and addressed to the party to which such
notice is directed at its most current principal business address as set forth
in the records of the Company.




















                                      16
<PAGE>   20
     All payments and reports required by this Agreement shall be directed to
the Company at the address specified by the Company from time to time, or to
such other persons and places as the Company may direct from time to time. 
Any required payment or report not actually received by the Company during
regular business hours on the date due or properly placed in the U.S. mail and
postmarked by postal authorities at least three (3) business days prior
thereto, shall be deemed delinquent.


IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
follows:


Area Developer:                         Witness:



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


All American Food Group, Inc.           Witness:



- -------------------------------
Andrew Thorburn, President

























































                                      17
<PAGE>   21
                                  APPENDIX A

                             DEVELOPMENT SCHEDULE


Area Developer acknowledges that the grant of rights contained in the Area
Development Agreement between the parties is expressly contingent on the
obligation of the Area Developer to develop the Territory in accordance with
the minimum development schedule outlined below.  As of the anniversary date
of this Agreement, Area Developer agrees that the following minimum number of
retail stores operating under the trade names and in accordance with the
policies and procedure of the Company shall be operating:



          At the end of year                      number of stores
          ------------------                      ----------------
                1                                 3
                2                                 6
                3                                 11
                4                                 16
                5                                 21

For the purposes of this schedule, only stores open and operating as of each
anniversary date shall be counted, and stores shall be included in this
schedule whether opened and operated by the Area Developer, or a sub
franchisee of Area Developer; it is further agreed that stores under the
"Goldberg's" and "Sammy's" name shall count equally, in the maintenance of
this development schedule.

It is expressly understood by the parties that failure of the Area Developer
to maintain the above Development Schedule shall be sufficient grounds for the
cancellation of Area Developer's exclusive rights to the Territory, and that
such failure shall constitute a default under the Area Development Agreement,
entitling the Company to the remedies available under the Agreement for such
default.


- ------------------------------
Area Developer                     Witness:


- ------------------------------
All Amercian Food Group, Inc.      Witness:







































                                      18

<PAGE>   1






                                                                    Exhibit 10.9

                     MODIFICATION AND SETTLEMENT AGREEMENT


         This Modification and Settlement Agreement (this "Agreement") is made
and entered into as of the 12th day of August, 1996, by and between (i) All
American Food Group, Inc., a New Jersey corporation previously known as
"Jutland Food Group, Inc." ("All American"), on the one hand, and, on the other
hand, (ii) Howard Goldberg ("Goldberg"), Howberg Bakery Equipment Co., Inc., a
New Jersey corporation, Bagels of New Milford, Inc. and Goldberg's Famous
Bagels of Orangeburg, NY (the corporations named in this clause (ii) being
sometimes referred to collectively as the "Goldberg Entities" and Goldberg and
the Goldberg Entities being sometimes referred to collectively as the "Goldberg
Parties");

                               W I T N E S E T H:

         WHEREAS, All American and one or more of the Goldberg Parties are
parties to (i) that certain Agreement dated October 20, 1993 for the sale and
purchase of a bagel business and the assets related thereto (the "1993 Purchase
Agreement"); (ii) that certain Consulting Agreement dated October 20, 1993
relating to the performance of certain services by Goldberg on behalf of All
American and related matters (the "1993 Consulting Agreement"); (iii) an
amendment to the 1993 Purchase Agreement dated September 29, 1994 (the "1994
Purchase Agreement Amendment"); (iv) an amendment to the 1993 Consulting
Agreement dated September 29, 1994, (the "1994 Consulting Agreement
Amendment"); (v) a Settlement and Modification Agreement dated as of October 6,
1995 (the "1995 Modification Agreement"); (vi) a Franchise Agreement relating
to that certain bagel store located at 10331 River Road, New Milford, New
Jersey (the "Bagel Store"), as amended, dated as of October 6, 1995 (the
"Franchise Agreement"); (vi) a Consulting Agreement, dated as of October 6,
1995 amending the 1993 Consulting Agreement, as amended; and (vii) various
ancillary documents and agreements (the agreements enumerated or referred to in
clauses (i) through (vii) above being referred to collectively as the
"Predecessor Agreements"); and

         WHEREAS, Goldberg is the controlling person of each of the Goldberg
Entities; and

         WHEREAS, on October 20, 1993, All American issued to Goldberg, for
good and valuable consideration, 120,000 shares of its Series A Preferred
Stock, par value $5.00 per share, and, thereafter, issued to Goldberg, for good
and valuable consideration, any additional 70,000 such shares; and

         WHEREAS, Goldberg transferred 10,000 shares of the Series A Preferred
Stock issued to him and continues to hold the remaining 180,000 shares (the
"Series A Shares"); and

         WHEREAS, All American is obligated to redeem, at a price of $5.00 per
share, 40,000 shares of the Series A Preferred Stock held by Goldberg within 30
days following the completion of an underwritten initial public offering of the
common stock, no par value, of All American ("Common Stock") yielding net
proceeds to All American of more than $2 million, which redemption obligation
is reflected in the Certificate of Designations covering the Series A Preferred
Stock (the "Certificate of Designations"); and
<PAGE>   2

         WHEREAS, on May 3, 1996, All American filed with the Securities and
Exchange Commission a Registration Statement on Form SB-2 covering the sale, in
an initial public offering (the "IPO"), of 600,000 shares of Common Stock at a
contemplated initial public offering price per share of $6.00, which initial
public offering, if completed, would trigger All American's redemption
obligation; and

         WHEREAS, All American and the Goldberg Parties believe it to be in
their respective business interests to arrive at a final settlement of the
matters set forth in the Predecessor Agreements;

         NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged by each of the parties hereto, such parties agree as follows.

SECTION 1.       DISPOSITION OF THE SERIES A PREFERRED SHARES.

         A.      CONVERSION OF SHARES. On or before the 5th business day after
the closing of the IPO, Goldberg shall submit to All American for conversion
and All American thereafter shall convert 65,000 shares of Series A Preferred
Stock into an equal number of shares of Common Stock, all in accordance with
the Certificate of Designations.

         B.      SURRENDER OF SHARES AND PAYMENT THEREFORE. On or before the
5th business day after the closing of the IPO, Goldberg shall deliver, transfer
and surrender to All American for cancellation share certificates representing
the remaining 115,000 shares of Series A Preferred Stock currently held by
Goldberg, together with fully executed stock powers relating thereto.
Contemporaneously with such surrender, All American shall pay to Goldberg the
amount of $25,000, which amount shall represent payment in full for the shares
surrendered for cancellation.


SECTION 2.       COVENANT NOT TO COMPETE AND RELATED MATTERS

         A.      USE OF NAME, TRADE DRESS, ETC.

                 (1)      PROHIBITION ON USE BY THE GOLDBERG PARTIES.
From and after the Closing Date (as that term is defined in Section 5 of this
Agreement), the Goldberg Parties shall not employ the "Goldberg" name, or the
distinctive logos, colors, trade names, trade dress or other distinctive
identifying marks (collectively "Trade Dress") currently in use by All American
in connection with its "Goldberg's Old World Bagels" and "Goldberg's New York
Bagels" stores and franchises, or any Trade Dress reasonably similar thereto,
in any business, whether or not in competition, directly or indirectly, with
All American and its franchisees. In the event that, in the future, All
American should adopt new, different or additional Trade Dress in connection
with its "Goldberg Old World Bagels" and "Goldberg's New York Bagels" stores
and franchises, the Goldberg Parties shall not employ any such Trade Dress or
any Trade Dress reasonably similar thereto, in any such business.





                                      -2-
<PAGE>   3
                 (2)      TRANSFER OF RIGHTS BY THE GOLDBERG PARTIES.
Effective on and as of the Closing Date, the Goldberg Parties assign, transfer
and set over to All American all of their right, title and interest in the
"Goldberg" name, family history and existing Trade Dress for use in the retail
bagel business or the bagel bakery equipment business.

                 (3)      LIMITATION ON ADOPTION AND USE BY ALL AMERICAN. From
and after the Closing Date, All American shall not adopt any Trade Dress
reasonably similar to any Trade Dress then in use by the Goldberg Parties,
provided that such Trade Dress then in use, and the use thereof, by the
Goldberg Parties is not in violation of this Agreement.


         B.      COVENANT NOT TO COMPETE.

                 (1)      SCOPE OF LIMITATION. From and after the Closing Date,
and for a period ending on the third (3rd) anniversary of the Closing Date,
none of the Goldberg Parties shall, directly or indirectly, solely or jointly
with any other person or entity, as an employee, employer, consultant,
franchiser, franchisee, agent, principal, partner, joint venturer, shareholder,
corporate officer, director, investor, lender or in any other individual,
representative or corporate capacity whatsoever, form, engage in, furnish aid
assistance or service of any kind or otherwise participate in any business
engaged in the licensing or franchising of retail establishments engaged in the
sale of bagels and related foodstuffs.

                 (2)      ACTIVITIES SPECIFICALLY PERMITTED. The covenant not
to compete set forth herein shall not be deemed to prohibit the Goldberg
Parties, directly or indirectly, from establishing, owning and/or operating one
or more retail establishments engaged in the sale of bagels and related
foodstuffs and/or bagel bakery equipment businesses; provided, however, that
the Goldberg Parties in no event shall be permitted to engage in activities
otherwise prohibited by Section 2.A.(1) hereof.

                 (3)      REASONABLENESS OF COVENANT. The Goldberg Parties
acknowledge that All American is engaged in the development of a nationwide
franchise system of bagel stores, that All American has given valuable
consideration for the Trade Dress and other intangible assets acquired thereby
from the Goldberg Parties and that, consequently, the limitations contained in
the covenant not to compete and related provisions set forth herein are
reasonable for the protection of All American's legitimate business interests,
are not unduly burdensome to the Goldberg Parties and otherwise are reasonable
in light of all of the circumstances.

                 (4)      REPLACEMENT OF PRIOR COVENANTS AND RESTRICTIONS. The
covenant not to compete and related provisions set forth herein shall be deemed
to replace any and all covenants not to compete and noncompetition agreements
heretofore entered into by Goldberg and All American.





                                      -3-
<PAGE>   4
3.       ADDITIONAL AGREEMENTS

         A.      NONINTERFERENCE.  Each of All American and the Goldberg
Parties agree that, as and after the date of execution hereof, neither shall
take any action including, without limitation, solicitation of employees,
suppliers, franchisees or customers, the reasonably foreseeable result of which
would be to interfere with, impede or disrupt the business of the other.

         B.      TERMINATION OF FRANCHISE AGREEMENT. Effective on and as of the
Closing Date, the Franchise Agreement shall terminate, Goldberg shall be
released from all obligations thereunder including, without limitation, any
obligations with respect to payments claimed to be due thereunder and the Bagel
Store shall have no further affiliation or identification with All American. In
connection with such termination, Goldberg shall remove the name "Goldberg" and
any Trade Dress subject to the provisions of Section 2.A. hereof no later than
the Closing Date.

         C.      MUTUAL RELEASE. This Agreement shall serve as a general
release between All American and the Goldberg Parties. By execution of this
Agreement the parties release and relinquish (i) all obligations imposed on
each other party pursuant to any of the Predecessor Agreements and (ii) all
claims and rights that any party may have against any other party pursuant to
any of the Predecessor Agreements or otherwise and arising out of the acts or
omissions of any party prior to the execution hereof.

         D.      INDEMNIFICATION WITH RESPECT TO LARRY KOSTERICH. All American
shall indemnify and hold harmless each of the Goldberg Parties in respect of
any and all losses, claims, damages, liabilities and expenses (including,
without limitation, reasonable attorneys' fees and expenses actually incurred)
for which any of the Goldberg Parties may become liable as a consequence of any
action brought by Larry Kosterich ("Kosterich") or any permitted successor in
interest thereto or permitted assignee thereof, against All American in which
any of the Goldberg Parties is named as a defendant with respect to any monies
alleged to be owed by All American to Kosterich or any action brought directly
by Kosterich against any of the Goldberg Parties seeking to revive or enforce
that certain promissory note originally issued by Goldberg in favor of
Kosterich and later replaced by a note issued by All American in Kosterich's
favor.

         E.      ASSIGNMENT OF CLAIMS AGAINST BENSONHURST BAGELS.   Effective
on and as of the Closing Date, All American assigns, transfers and sets over to
Goldberg any claim which it may have against Bensonhurst Bagels relating to
payment for bagel bakery equipment sold thereto.

         F.      TRANSFERABILITY OF COMMON STOCK. All American shall impose no
restrictions on the ability of Goldberg to sell his 65,000 shares of Common
Stock. In addition, All American shall exert its best efforts to ensure that
such shares are not subject to lock-up by the underwriter in connection with
the IPO, (which lock-up presently is proposed to be limited to shares of
directors and executive officers).





                                      -4-
<PAGE>   5
SECTION 4.       REPRESENTATIONS AND WARRANTIES

         A.      OF ALL AMERICAN.  All American represents and warrants to the
Goldberg Parties as follows:

                 (1)      All American is, and on the Closing Date will be, a
corporation validly existing and in good standing under the laws of the State
of New Jersey and has and will have all of the corporate power and authority to
execute, deliver and perform this Agreement.

                 (2)      This Agreement has been duly authorized, executed and
delivered by All American and constitutes the valid and binding agreement of
All American in accordance with its terms.

                 (3)      The execution and delivery of this Agreement by All
American and its consummation of the transactions contemplated hereby will not
violate any agreement or any law, judgment, writ, injunction, order or decree
to which All American is a party, to which it is subject or by which it is
bound.

                 (4)      There is no action, suit, proceeding or claim pending
or, to the best of its knowledge, threatened, against All American which would
affect the ability of All American to perform its obligations hereunder.

                 (5)      All American acknowledges that, following
consummation of the transactions contemplated by Sections 1 and 5 hereof,
Goldberg will be the registered and beneficial owner of a total of 65,000
shares of All American's Common Stock, and that each and every such share shall
be duly authorized and validly issued as fully paid and non-assessable shares.

                 (6)      No consent, approval, authorization or order of any
court, governmental agency or body, or financial institution is required in
connection with the performance, by All American, of its obligations hereunder.

         B.      OF THE GOLDBERG PARTIES. Goldberg and each of the Goldberg
Entities represents and warrants to All American as follows:

                 (1)      Each of the Goldberg Entities is, and on the Closing
Date will be, a corporation validly existing and in good standing under the
laws of its jurisdiction of incorporation and has and will have all of the
corporate power and authority to execute, deliver and perform this Agreement.

                 (2)      This Agreement has been duly executed and delivered
by Goldberg and duly authorized, executed and delivered by each of the Goldberg
Entities and constitutes the valid and binding agreement of each of the
Goldberg Parties in accordance with its terms.

                 (3)      The execution and delivery of this Agreement by each
of the Goldberg Parties and their consummation of the transactions contemplated
hereby will not violate any





                                      -5-
<PAGE>   6
agreement or any law, judgment, writ, injunction, order or decree to which any
of the Goldberg Parties is a party, to which it is subject or by which it is
bound.

                 (4)      There is no action, suit, proceeding or claim pending
or, to the best of the knowledge of any of the Goldberg Parties, threatened,
against any of the Goldberg Parties which would affect the ability of any of
such Goldberg Parties to perform its obligations hereunder.

                 (5)      Goldberg acknowledges (i) that he is knowingly and
willingly relinquishing all of his right, title and interest in and to 115,000
shares of Series A Preferred Stock on the Closing Date pursuant to the terms of
this Agreement; (ii) that following consummation of the transactions
contemplated by Sections 1 and 5 hereof, Goldberg will be the registered and
beneficial owner of a total of 65,000 shares of All American's Common Stock;
and (iii) that the 180,000 shares of Series A Preferred Stock to be converted
or relinquished in accordance with the terms of this Agreement represent all of
the shares of capital stock of All American, of any kind or character, which
currently are owned by the Goldberg Parties or in or as to which any of the
Goldberg Parties has any ownership claim or interest.

                 (6)      No consent, approval, authorization or order of any
court, governmental agency or body, or financial institution is required in
connection with the performance, by any of the Goldberg Parties, of their
respective obligations hereunder.


SECTION 5.       CLOSING.

         A.      CLOSING DATE.    The closing of the transactions contemplated
hereby shall occur at 10 o'clock in the morning, local time, at the offices of
Venable, Baetjer, Howard & Civiletti, LLP, 1201 New York Avenue, NW, Washington
DC 20005 no later than the fifth (5th) business day following the closing of
the IPO or on such other date, at such other time, or at such other location as
shall mutually be agreed upon by the parties (the "Closing Date").

         B.      CONDITIONS PRECEDENT TO ALL AMERICAN'S OBLIGATIONS. All
obligations of All American pursuant to this Agreement are subject to the
satisfaction, by the Goldberg Parties, of the following conditions on or prior
to the Closing Date:

                 (1)      All representations and warranties of the Goldberg
Parties shall be true on the Closing Date, as if made at that time.

                 (2)      Goldberg shall have removed from the Bagel Store all
Trade Dress subject to Section 2.A.(1) hereof.

         C.      CONDITIONS PRECEDENT TO THE GOLDBERG PARTIES' OBLIGATIONS. All
obligations of the Goldberg Parties pursuant to this Agreement are subject to
the satisfaction, by All American, of the following conditions, on or prior to
the Closing Date:

                 (1)      All representations and warranties of All American
shall be true on the Closing Dates, as if made at that time;





                                      -6-
<PAGE>   7
                 (2)      The 65,000 shares of Common Stock to be held by
Goldberg immediately subsequent to the completion of the transactions
contemplated by Sections 1 and 5 hereof shall not be subject to lock-up by the
underwriter in connection with the IPO; provided, however, that Goldberg, in
his sole and absolute discretion, may agree to a lock-up on such terms as he
shall deem acceptable. In the event that Goldberg elects to agree to a lock-up,
this condition shall be deemed to have been satisfied.

         D.      CONDUCT OF THE CLOSING.  On or prior to the Closing Date,
Goldberg shall effect the conversion of 65,000 shares of his Series A Preferred
Stock theretofore delivered by Goldberg to All American for such conversion to
an equal number of shares of Common Stock and Goldberg shall deliver, transfer
and surrender to All American for cancellation certificates representing the
remaining 115,000 shares of Series A Preferred Stock held by Goldberg, together
will fully executed stock powers relating thereto.  Contemporaneously with the
conversion of Series A Preferred Stock to Common Stock and the delivery to All
American of certificates representing Series A Preferred Stock and executed
stock powers as contemplated hereby, All American shall pay to Goldberg the sum
of $25,000 by bank or certified check. It is the expectation of the parties
that the closing shall be conducted "on the papers," and that the physical
presence of the parties shall not be required. The parties expressly agree that
facsimile signature pages shall be acceptable for purposes of the closing.

SECTION 6.       NOTICES.

         Notices or other communication required or contemplated hereby or in
connection herewith shall be deemed adequately given if in writing and
delivered in person or by courier or facsimile transmission (in each case
notice to be deemed received on the date following the date of dispatch) or if
sent via United States first class mail, postage prepaid and return receipt
requested (such notice to be deemed received on the earlier of the date of
actual receipt or the third (3rd) business day following dispatch) as follows:

         ALL AMERICAN:

         All American Food Group, Inc.
         9 Law Drive
         Fairfield, New Jersey 07006
         Facsimile No. (201) 244-9350





                                      -7-
<PAGE>   8
         WITH COPIES TO:

         David J. Levenson, Esquire
         Venable, Baetjer, Howard & Civiletti, LLP
         1201 New York Avenue, NW
         Washington, DC 20005
         Facsimile No. (202) 962-8300

         THE GOLDBERG PARTIES:

         Howard Goldberg
         Care of Leonard R. Glass, Esquire
         Cole, Schotz, Meisel, Forman & Leonard, P.A.
         25 Main Street
         Post Office Box 800
         Hackensack, New Jersey 07602-0800
         Facsimile No. (201) 489-5647

         WITH COPIES TO:

         Leonard R. Glass, Esquire
         Cole, Schotz, Meisel, Forman & Leonard, P.A.
         25 Main Street
         Post Office Box 800
         Hackensack, New Jersey 07602-0800
         Facsimile No. (201) 489-5647

         Any party hereto may change the address to which notices are to be
addressed pursuant hereto by notice given to each other party in the manner
provided above.

SECTION 7.       TERMINATION

         In the event that the closing of the IPO has not occurred on or before
December 15, 1996, this Agreement shall be terminable at the election of either
All American or Goldberg by the delivery of a notice of such election to
terminate in accordance with the terms of Section 6 hereof.


SECTION 8.       MISCELLANEOUS PROVISIONS

         A.      FURTHER ASSURANCES. From and after the date of this Agreement,
each of the parties hereto agrees to execute and deliver such further documents
and take such further actions as the other party may deem to be reasonably
necessary or desirable in order to effect the intent of this Agreement,
including, without limitation, documents and actions relating to the assignment
of Trade Dress pursuant to Section 2.A.(3) hereof and of claims against
Bensonhurst Bagels pursuant to Section 3.E. hereof.





                                      -8-
<PAGE>   9
         B.      ENTIRE AGREEMENT. This Agreement, including the introductory
clauses hereto, which clauses are incorporated herein by reference and made a
part hereof, represents the entire understanding of the parties pertaining to
the subject matter hereof, and supersedes any and all prior agreements,
understandings, negotiations and discussions, whether written or oral, between
the parties with respect to such subject matter including, without limitation,
each of the Predecessor Agreements.

         C.      SEVERABILITY. In the event that any one or more of the
provisions contained in this Agreement, or the application thereof to any
person(s) or in any circumstance(s), shall, for any reason, be found by a court
of competent jurisdiction to be invalid, illegal or unenforceable, (i) the
remaining provisions of this Agreement shall be unimpaired and shall remain in
full force and effect and (ii) each invalid, illegal or unenforceable provision
shall be limited in such a way as to be valid and enforceable or replaced by
one that is valid and enforceable, in either event so that such limited or
replacement provision as closely as possible effectuates the original intent of
the parties with respect to such invalid, illegal or unenforceable provision(s)
or, if such replacement is not possible, such invalid, illegal or unenforceable
provision be deleted from this Agreement as if never included herein.

         D.      BINDING EFFECT. The provisions of this Agreement shall be
binding upon, and shall inure to the benefit of, the heirs, successors, assigns
or legal representatives of each of the parties hereto.

         E.      WAIVER; AMENDMENT. No supplement, amendment, modification,
waiver, termination, rescission, discharge or cancellation of this Agreement or
any provision hereof (including, without limitation, any waiver of any required
performance or default hereunder) shall be binding unless in writing and
executed by the party or parties against whom enforcement is sought. No waiver
of any provision hereof or any default hereunder shall be deemed to be, or
shall constitute, a waiver of any other such provision or default (whether or
not similar) and no such waiver shall constitute a continuing waiver unless
expressly so provided

         F.      CAPTIONS AND HEADINGS. Captions to and headings of the various
provisions hereof are solely for the convenience of the parties, are not a part
of this agreement, and shall not be used for the interpretation of or
determination of the validity of this Agreement or any term or provision
hereof.

         G.      GENDER AND NUMBER. As required by the context, all words used
herein in the singular shall extend to and include the plural; all words used
in the plural shall extend to and include the singular, and all words used in
either gender or in the neuter shall extend to all genders or be neutral.

         H.      GOVERNING LAW. This Agreement and the legality, validity and
performance of the terms hereof shall be governed by and enforced, determined
and construed in accordance with the laws of the State of New Jersey, without
regard to the conflict of laws provisions thereof.

         I.      COSTS OF ENFORCEMENT. In the event that any party hereto
brings an action in connection with, or to enforce any of the provisions of,
this Agreement, the unsuccessful party to such action shall





                                      -9-
<PAGE>   10
pay to the successful party all costs and expenses of such litigation,
including, without limitation, reasonable attorneys' fees.

         I.      COUNTERPARTS. This Agreement may be executed by facsimile and
in counterparts, each of which shall be deemed an original but all of which
taken together shall constitute one and the same instrument.


         IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.


                                 ALL AMERICAN FOOD GROUP, INC. .
                                 
                                 
                                 
                                 By:                                        
                                    ----------------------------------------
                                     Andrew Thorburn
                                     Chairman, President and Chief Executive 
                                       Officer
                                 
                                 
                                 HOWARD GOLDBERG:
                                 
                                                                            
                                 -------------------------------------------
                                 
                                 
                                 HOWBERG BAKERY EQUIPMENT CO. INC.
                                 
                                 
                                 By:                                        
                                    ----------------------------------------
                                     Howard Goldberg
                                 
                                 
                                 Title:
                                       -------------------------------------
                                 
                                 BAGELS OF NEW MILFORD, INC.,
                                 
                                 
                                 
                                 By:                                        
                                    ----------------------------------------
                                     Howard Goldberg
                                 
                                 Title:
                                       -------------------------------------






                                      -10-
<PAGE>   11


                                 GOLDBERG'S FAMOUS BAGELS OF ORANGEBURG, NY
                                 
                                 
                                 By:                                        
                                    ----------------------------------------
                                     Howard Goldberg
                                 
                                 Title:
                                       -------------------------------------
                                       
    APPROVED AS TO FORM:         
                                 
                                 
                                 -------------------------------------------
                                 Leonard R. Glass
                                 Attorney for the Goldberg Parties
                                 
                                 
                                 
                                 -------------------------------------------
                                 David J. Levenson
                                 Attorney for All American






                                      -11-

<PAGE>   1

                                                                     EXHIBIT 11

    ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.) AND
         SUBSIDIARIES SCHEDULE OF COMPUTATION OF NET LOSS PER SHARE


<TABLE>
<CAPTION>
                                                                        Six Months  Ended April 30,        Year Ended       
                                                                     -------------------------------       January 31,
                                                                            1996           1995              1996          
                                                                            ----           ----              ----          
 <S>                                                                    <C>               <C>             <C>                 
                               PRIMARY                                                                                     
                               -------                                                                                     
                                                                                                                           
                                                                                                                           
 Net Loss  . . . . . . . . . . . . . . . . . . . . . . . . . . .          ($752,594)      ($856,656)       ($1,537,250)    
                                                                                                                           
                                                                                                                           
 Less- increase in carrying amount of redeemable                                                                           
    preferred stock  . . . . . . . . . . . . . . . . . . . . . .           (707,540)          --               --          
                                                                   --------------------------------------------------------
                                                                        ($1,460,494)      ($856,656)       ($1,537,250)    
                                                                   ========================================================
                                                                                                                           
                                                                                                                           
 Weighted average number of common shares outstanding  . . . . .           1,886,905       2,305,201          1,886,300    
                                                                                                                           
    Add - common shares (determined using the "treasury                                                                    
    stock" (method) representing additional shares(1)                                                                      
    as if those shares were outstanding for all periods) . . . .           1,891,070       1,891,070          1,891,070    
                                                                                                                           
                                                                   --------------------------------------------------------
                                                                                                                           
                                                                                                                           
 Weighted average number of shares used in calculation of primary             
 loss per share  . . . . . . . . . . . . . . . . . . . . . . . .           3,777,975       4,196,271          3,777,370
                                                                   ========================================================
                                                                                                                           
                                                                                                                           
 Primary net loss per common share . . . . . . . . . . . . . . .             ($0.38)         ($0.20)            ($0.41)    
                                                                   ========================================================
                                                                                                                           
                            FULLY DILUTED                                                                                  
                            -------------                                                                                  
                                                                                                                           
 Net loss for primary loss per common share                                                                                
 and for fully diluted per share amounts . . . . . . . . . . . .        ($1,460,434)      ($856,656)       ($1,537,250)         
                                                                                                                          
                                                                   ========================================================
                                                                                                                           
                                                                                                                           
 Weighted average number of shares used in calculating                                                                     
 primary loss per share  . . . . . . . . . . . . . . . . . . . .           3,777,975       4,196,271          3,777,370    
 Add incremental shares representing:                                                                                      
    Shares issuable upon conversion of convertible                                                                         
    preferred stock  . . . . . . . . . . . . . . . . . . . . . .           1,165,732       1,192,976          1,217,055    
                                                                                                                           
  Shares issuable upon exercise of stock options . . . . . . . .              27,500          13,522             27,500    
                                                                   --------------------------------------------------------
                                                                                                                           
                                                                                                                           
 Weighted average number of shares used in calculation                                                                     
 of fully diluted loss per share . . . . . . . . . . . . . . . .           4,971,207       5,402,769          5,021,925    
                                                                   ========================================================
                                                                                                                           
                                                                                                                           
                                                                                                                           
 Fully diluted net loss per common share . . . . . . . . . . . .             ($0.29)         ($0.16)            ($0.31)    
                                                                   ========================================================
</TABLE>


<TABLE>
<CAPTION>                                                           
                                                                                                       
                                                                    Nine Months                        
                                                                       Ended             Year Ended    
                                                                    October 31,         January 31,    
                                                                        1995                1995       
                                                                        ----                ----       
 <S>                                                                  <C>                  <C>         
                               PRIMARY                                                                 
                               -------                                                                 
                                                                                                       
                                                                                                       
 Net Loss  . . . . . . . . . . . . . . . . . . . . . . . . . . .      ($1,151,545)         ($1,062,621)
                                                                                                       
                                                                                                       
 Less- increase in carrying amount of redeemable                                                       
    preferred stock  . . . . . . . . . . . . . . . . . . . . . .          --                   --      
                                                                   ------------------------------------
                                                                      ($1,151,545)         ($1,062,621)
                                                                   ====================================
                                                                                                       
                                                                                                       
 Weighted average number of common shares outstanding  . . . . .         1,886,300            1,966,167
    Add - common shares (determined using the "treasury                                                
    stock" (method) representing additional shares(1)                                                  
    as if those shares were outstanding for all periods) . . . .         1,891,070            1,891,070
                                                                                                       
                                                                   ------------------------------------
                                                                                                       
                                                                                                       
 Weighted average number of shares used in calculation of primary                                      
 loss per share  . . . . . . . . . . . . . . . . . . . . . . . .         3,777,370            3,857,237
                                                                   ====================================
                                                                                                       
                                                                                                       
 Primary net loss per common share . . . . . . . . . . . . . . .           ($0.30)              ($0.28)
                                                                   ====================================
                                                                                                       
                                                                                                       
                            FULLY DILUTED                                                              
                            -------------                                                              
                                                                                                       
 Net loss for primary loss per common share                                                            
 and for fully diluted per share amounts . . . . . . . . . . . .      ($1,151,545)         ($1,062,621)
                                                                                                       
                                                                   ====================================
                                                                                                       
 Weighted average number of shares used in calculating                                                 
 primary loss per share  . . . . . . . . . . . . . . . . . . . .         3,777,370            3,857,237
 Add incremental shares representing:                                                                  
    Shares issuable upon conversion of convertible                                                     
    preferred stock  . . . . . . . . . . . . . . . . . . . . . .         1,214,377              100,000
                                                                                                       
  Shares issuable upon exercise of stock options . . . . . . . .            27,500               --    
                                                                   ------------------------------------
                                                                                                       
 Weighted average number of shares used in calculation                                                 
 of fully diluted loss per share . . . . . . . . . . . . . . . .         5,019,247            3,957,237
                                                                   ====================================
                                                                                                       
                                                                                                       
 Fully diluted net loss per common share . . . . . . . . . . . .           ($0.23)              ($0.27)
                                                                   ====================================
</TABLE>

(1)     Additional shares represent the number of shares and options
        issued within the twelve months prior to the Company filing a
        registration statement on May 3, 1996 for an initial public offering
        (IPO) that were issued for consideration per share or at an exercise
        price per share less than the anticipated  IPO price of $6.00 per
        share.


<PAGE>   1
                                                                    EXHIBIT 21.1


                        ALL AMERICAN FOOD GROUP, INC.

                             LIST OF SUBSIDIARIES



         NAME OF SUBSIDIARY                           STATE OF  INCORPORATION
         ------------------                           -----------------------

1.       G.I.D. Distributors, Inc.                          New Jersey

2.       Queen Anne Distributors, Inc.                      New Jersey

3.       Sammy's N.Y. Bagels, Inc.                          Ohio
 



WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<TABLE> <S> <C>

<ARTICLE> 5
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          APR-30-1996  
<PERIOD-END>                               OCT-31-1996
<CASH>                                         896,132
<SECURITIES>                                   [BLANK]
<RECEIVABLES>                                  324,068
<ALLOWANCES>                                    15,000
<INVENTORY>                                     74,167
<CURRENT-ASSETS>                             1,236,042
<PP&E>                                       1,106,602
<DEPRECIATION>                                 197,426
<TOTAL-ASSETS>                               2,701,582
<CURRENT-LIABILITIES>                        1,054,760
<BONDS>                                        [BLANK]
                          707,540
                                    393,043
<COMMON>                                     3,360,136
<OTHER-SE>                                 (3,064,857)
<TOTAL-LIABILITY-AND-EQUITY>                 2,701,582
<SALES>                                        943,316
<TOTAL-REVENUES>                             1,138,955
<CGS>                                          735,268
<TOTAL-COSTS>                                1,868,858
<OTHER-EXPENSES>                               [BLANK]
<LOSS-PROVISION>                               [BLANK]
<INTEREST-EXPENSE>                              23,051
<INCOME-PRETAX>                              (752,954)
<INCOME-TAX>                                   [BLANK]
<INCOME-CONTINUING>                          (752,954)
<DISCONTINUED>                                 [BLANK]
<EXTRAORDINARY>                                [BLANK]
<CHANGES>                                      [BLANK]
<NET-INCOME>                                 (752,954)
<EPS-PRIMARY>                                    (.39)
<EPS-DILUTED>                                    (.29)
        
<ARTICLE> 5
       
<S>                             <C>
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          OCT-31-1995
<PERIOD-END>                               OCT-31-1995
[CASH]                                          53,703
[SECURITIES]                                   [BLANK]
[RECEIVABLES]                                  175,511
[ALLOWANCES]                                    15,000
[INVENTORY]                                    123,649
[CURRENT-ASSETS]                               343,749
[PP&E]                                         663,491
[DEPRECIATION]                                 145,589
[TOTAL-ASSETS]                               1,338,794
[CURRENT-LIABILITIES]                        1,246,469
[BONDS]                                        [BLANK]
[PREFERRED-MANDATORY]                          [BLANK]
[PREFERRED]                                  1,022,580
[COMMON]                                       876,150
[OTHER-SE]                                 (1,946,903)
[TOTAL-LIABILITY-AND-EQUITY]                 1,338,794
[SALES]                                      1,973,067
[TOTAL-REVENUES]                             2,350,268
[CGS]                                        1,739,147
[TOTAL-COSTS]                                3,515,735
[OTHER-EXPENSES]                               [BLANK]
[LOSS-PROVISION]                              (35,000)
[INTEREST-EXPENSE]                              21,078
[INCOME-PRETAX]                            (1,151,545)
[INCOME-TAX]                                   [BLANK]
[INCOME-CONTINUING]                        (1,151,545)
[DISCONTINUED]                                 [BLANK]
[EXTRAORDINARY]                                [BLANK]
[CHANGES]                                      [BLANK]
[NET-INCOME]                               (1,151,545)
[EPS-PRIMARY]                                    (.30)
[EPS-DILUTED]                                    (.23)
        

</TABLE>


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission