JAVA CENTRALE INC /CA/, SB-2/A, 1998-02-02

JAVA CENTRALE INC /CA/
SB-2/A, 1998-02-02
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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1998

REGISTRATION NO. 333-43343
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

PRE-EFFECTIVE AMENDMENT NO. 3
TO
FORM SB-2

REGISTRATION STATEMENT
UNDER

THE SECURITIES ACT OF 1933
--------------------------

JAVA CENTRALE, INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
CALIFORNIA 5800 68-0268780
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number Identification
incorporation or organization) Number)
</TABLE>

1610 ARDEN WAY, SUITE 145
SACRAMENTO, CA 95815
(916) 568-2310

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive office)

JEFFREY W. DUDLEY
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
1610 ARDEN WAY, SUITE 145
SACRAMENTO, CA 95815
(916) 568-2310

(Address, including zip code, and telephone number, including area code, of
agent for service of process)
--------------------------

THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:

PHILIP S. BOONE, JR., ESQ.
Rosenblum, Parish & Isaacs, PC
555 Montgomery Street, 15th Floor
San Francisco, CA 94111
--------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:

FROM TIME TO TIME, COMMENCING AS SOON AS POSSIBLE AFTER THE EFFECTIVE DATE OF
THIS REGISTRATION STATEMENT.
--------------------------

If this form is filed to register additional securities for an offering
pursuant to Rule 426(b) under the Securities Act, please check the following box
and list the Securities Act registration 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 number of the earlier effective registration statement for the same
offering / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

If any of the securities registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box /X/
--------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
BE REGISTERED REGISTERED SHARE(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock(2)(3)................... 4,180,000 $3.50 14,630,000 $4,315.85
</TABLE>

(1) Estimated solely for the purpose of determining the registration fee, based,
in accordance with Rule 457(h), on the average of high and low prices at
which the Registrant's Common Stock was sold on December 19, 1997.

(2) A fee of $4,315.85 was paid in two payments, $3,059.85 with the original
Registration Statement and $1,256.00 with the Amendment No. 1 Registration
Statement.

(3) Includes 3,555,000 shares, which are issuable upon the exercise of certain
Common Stock purchase Warrants described herein.

(4) Pursuant to Rule 416, there are also being registered such additional shares
as may be required for issuance pursuant to the anti-dilution provisions of
the Warrants described herein.
--------------------------

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 SECTION 8(A) MAY
DETERMINE.

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JAVA CENTRALE, INC.
CROSS-REFERENCE SHEET PURSUANT TO
ITEM 501(B) OF REGULATION S-B

<TABLE>
<CAPTION>
ITEM CAPTION IN FORM SB-2 LOCATION IN PROSPECTUS BY CAPTION
- --------- ---------------------------------------------------- ----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside Facing Page; Cross-Reference Sheet; and Outside
Front Cover Page of Prospectus Front Cover Page
2. Inside Front and Outside Back Cover Pages of Cover Page; Available Information; Incorporation of
Prospectus Certain Documents by Reference
3. Summary Information, Risk Factors, and Ratio of Prospectus Summary; Risk Factors
Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Selling Shareholders
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Business--Legal Proceedings
10. Directors, Executive Officers, Promoters, and Management
Control Persons
11. Security Ownership of Certain Beneficial Owners and Management--Security Ownership of Certain Beneficial
Management Owners and Management
12. Description of Securities Description of the Common Stock
13. Interests of Named Experts and Counsel Not Applicable
14. Disclosure of Commission Position on Indemnification Indemnification
for Securities Act Liabilities
15. Organization Within Last Five Years Not Applicable
16. Description of Business Description of Business
17. Management's Discussion and Analysis or Plan of Management's Discussion and Analysis of Results of
Operations Operations and Financial Condition
18. Description of Property Description of Property
19. Certain Relationships and Related Transactions Certain Relationships and Related Transactions
20. Market for Common Equity and Related Stockholder Market for Common Equity and Related Stockholder
Matters Matters
21. Executive Compensation Management--Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Accountants on Not Applicable
Accounting and Financial Disclosure
24. Indemnification of Directors and Officers Management--Indemnification of Directors and
Officers
25. Other Expenses of Issuance and Distribution Other Expenses of Issuance and Distribution
26. Recent Sales of Unregistered Securities Recent Sales of Unregistered Securities
27. Exhibits Exhibits
</TABLE>
<PAGE>
JAVA CENTRALE, INC.

4,180,000 SHARES OF COMMON STOCK

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

This Prospectus is issued by Java Centrale, Inc., a California corporation
(the "Company") on behalf of the Company and certain of its existing
shareholders and warrant holders.

This securities offered hereby include 625,000 currently outstanding shares
of the Company's Common Stock held by certain of the Company's current
shareholders (the "Selling Current Shareholders") and up to 3,555,000 shares of
Common Stock which may be issued in the future pursuant to the exercise of
certain Common Stock Purchase Warrants (the "Warrants") held by the Selling
Current shareholders and certain other warrant holders (the "Other Warrant
Holders"). As used in this Prospectus, the term "Selling Shareholders" refers to
both the Selling Current Shareholders and the Other Warrant Holders. (See
"Selling Shareholders" and "Plan of Distribution" below.)

The shares of Common Stock offered hereby (the "Shares") may be sold from
time to time by the Selling Shareholders or by transferees, commencing on the
date of this Prospectus. The Company will not receive any of the proceeds from
sales of the Shares, which may be offered from time to time by the Selling
Shareholders through ordinary brokerage transactions in the over-the-counter
market, in negotiated transactions or otherwise, at market prices prevailing at
the time of sale or at prices arrived at through negotiation. No underwriting
arrangements with respect to the sale or resale of the Shares have been entered
into by the Company or, to the Company's knowledge, by the Selling Shareholders.

All costs, expenses, and fees in connection with the registration of the
Shares will be borne by the Company. Brokerage commissions, if any, attributable
to the sale or resale of the Shares will be borne by the offering parties.

The Company's Common Stock is listed on The NASDAQ Stock Market SmallCap
List under the symbol "JAVC." On January 29, 1998, the last reported sale price
for the Common Stock on the NASDAQ SmallCap Market List was $3.50 per share.

THE SECURITIES OFFERED IN THIS PROSPECTUS ARE HIGHLY SPECULATIVE, AND AN
INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING AT 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 January 30, 1998

1
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TABLE OF CONTENTS

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PAGE
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<S> <C>
AVAILABLE INFORMATION..................................................... 3
PROSPECTUS SUMMARY........................................................ 4
SUMMARY FINANCIAL AND OPERATING DATA...................................... 6
RISK FACTORS.............................................................. 7
USE OF PROCEEDS........................................................... 12
DIVIDEND POLICY........................................................... 12
CAPITALIZATION............................................................ 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS.............. 14
BUSINESS.................................................................. 25
MANAGEMENT................................................................ 34
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................. 43
SELLING SHAREHOLDERS...................................................... 44
DESCRIPTION OF THE COMMON STOCK........................................... 45
GENERAL DESCRIPTION OF THE WARRANTS....................................... 45
Terms of the Warrants................................................... 46
Manner of Exercise...................................................... 46
Rights as a Shareholder, Employee, or Consultant........................ 46
Transfer of the Warrants................................................ 47
Redemption Rights....................................................... 47
Warrants Held by Other Warrant Holders.................................. 47
PLAN OF DISTRIBUTION...................................................... 47
INDEMNIFICATION OF OFFICERS AND DIRECTORS................................. 47
LEGAL MATTERS............................................................. 48
EXPERTS................................................................... 48
FINANCIAL STATEMENTS...................................................... F-1
</TABLE>

2
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
ANY OFFER OR SALE OF THE SHARES DESCRIBED HEREIN, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS
HAVING BEEN MADE OR AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY BY ANYONE IN ANY STATE 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.

AVAILABLE INFORMATION

The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the regional offices of the Commission located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois and 75 Park Place, 14th Floor, New York, New York 10007. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.

The Commission also maintains a Web site, the address of which is
HTTP://WWW.SEC.GOV, which contains reports, proxy and information statements,
and other information regarding registrants that file electronically with the
Commission.

The Company's Common Stock is listed on the National Association of
Securities Dealers ("NASD") NASDAQ SmallCap Market List, and such reports and
other information concerning the Company can also be inspected at the offices of
the NASD at 1735 K Street, N.W., Washington, D.C. 20006-1500.

3
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PROSPECTUS SUMMARY

Certain forward-looking statements are included in this report. They use
such words as "may," "will," "expect," "believe," "plan," "anticipate" and other
similar terminology. These statements reflect management's current expectations
and involve a number of risks and uncertainties. Actual results could differ
materially depending on the success or failure of the Company's current and
projected financing strategies and due to changes in global and local business
and economic conditions; the Company's management and/or commercial and
contractual relationships; legislation and governmental regulation; competition;
success of operating initiatives and advertising and promotional efforts; food,
labor and other operating costs; availability and cost of leasehold space and
construction; accounting policies and practices; consumer preferences, spending
patterns and demographic trends; and interest rates.

THE COMPANY

Java Centrale, Inc., a California corporation (the "Company"), was
incorporated in March of 1992 and began its principal operations in April of
1993. The Company conducts its business of selling coffee and bakery products to
consumers through its wholly-owned subsidiary Paradise Bakery, Inc., which both
operates and franchises upscale bakery cafes. Effective December 31, 1997, the
Company sold substantially all of the assets of its Java Centrale franchise
system. The Company received $1,500,000 in consideration for this transaction.
The consideration consists of $1,000,000 in a combination of future royalties to
be received by the buyer and credits from purchases by the Company from the
Buyer's wholesale bakery operation. In addition the Company received 5,000,000
shares of the Buyer's restricted Common Stock valued at $500,000 at the close of
the transaction.

Paradise Bakery, Inc., doing business as Paradise Bakery and Cafe, operates
in high-end locations such as upscale malls and airports. Featured menu items,
depending upon the location, include an assortment of bakery products, featuring
cookies, muffins, croissants and desserts, freshly prepared and baked daily at
each location, as well as, specialty soups, salads, and sandwiches. Paradise
Bakery, Inc. has operated a successful and growing business for 21 years. Most
of the existing locations are in high profile upscale areas in the western-half
of the United States. As of December 31, 1997, a total of 51 Paradise Bakery and
Cafes were operating in eight states, comprised of 16 Company-owned and 35
franchised cafes.

At the Company's 1997 Annual Meeting, held on November 25, 1997, its
Shareholders approved, among other proposals, a one-for-ten reverse split of its
outstanding shares of Common Stock and a change in the Company's state of
incorporation from California to Delaware, including a change in the Company's
name to Paradise Bakery & Cafe, Inc. The reverse stock split became effective on
December 19, 1997; consequently all share and price per share information in
this Prospectus has been adjusted to take the reverse stock split into account.
The reincorporation to Delaware and consequent name change have not yet been
implemented, but the Company anticipates consummating these transactions during
the first quarter of 1998.

The Company's principal executive offices are located at 1610 Arden Way,
Suite 145, Sacramento, California 95815, and its telephone number is (916)
568-2310.

4
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THE OFFERING

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<S> <C>
Shares of Stock Offered by the
Selling Shareholders............ 4,180,000

Shares of Stock Currently
Outstanding..................... 2,330,504

Shares of Stock which will be
Outstanding Following the
Exercise of the Warrants........ 5,885,504

Use of Proceeds................... The Company will not receive any of the proceeds from
the sale of the shares of Common Stock offered hereby.

Plan of Distribution.............. The Company will not receive any of the proceeds from
any sales of the shares by the Selling Shareholders.
Such shares may be offered from time to time by or for
the account of the Selling Shareholders through dealers,
brokers or other agents, or directly to one or more
purchasers, at market prices prevailing at the time of
sale or prices otherwise negotiated.

Among the Shares described herein are 1,875,000 shares
of Common Stock which are either currently outstanding
or may be obtained in the future through the exercise of
certain Class A and Class B Warrants held by the
investors in the Company's recent private offering of
Units. (See "Selling Shareholders-- Origin of the Shares
Offered".) Such investors are referred to herein as
"Selling Current Shareholders." Until the expiration of
one year from the date on which such investors first
obtained their Units (which will be in September or
October of 1998), they may not publicly sell their
Shares described herein (including any Shares which they
may obtain through the exercise of their Warrants)
without the prior written consent of E. C. Capital,
Ltd., the Placement Agent for that Units offering.

RISK FACTORS...................... The Shares of Common Stock offered hereby involve a high
degree of risk and should be purchased only by persons
who can afford to sustain the loss of their entire
investment. See "RISK FACTORS."

NASDAQ Symbol..................... JAVC
</TABLE>

5
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA

The following table sets forth summary historical financial data for the
Company for the fiscal years ended March 31, 1997 and 1996, as well as for the
six month periods ended September 30, 1997 and 1996. The historical financial
data are derived from the Consolidated Financial Statements included elsewhere
in this Prospectus. The summary historical financial data should be read in
conjunction with the Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
---------------------- ----------------------
1997(1) 1996(2)(3) 1997 1996(4)
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Statement of Operations Data:

Revenues................................... $14,809,000 $9,555,000 $5,197,000 $8,481,000
Operating Expenses......................... 19,735,000 13,593,000 7,314,000 9,998,00
---------- ---------- ---------- ----------
Operating Loss............................. (4,926,000) (4,038,000) (2,117,000) (1,517,000)
Interest Income (expense), net............. (549,000) (19,000) (291,000) (130,000)
Other income (expense), net................ 149,000 91,000 14,000 136,000
---------- ---------- ---------- ----------
Net loss................................... $(5,326,000) $(3,966,000) $(2,394,000) $(1,511,000)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net loss per equivalent common share(5).... $ (4.61) $ (6.08) $ (1.55) $ (1.51)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Common Stock and equivalent Common
Shares(5)................................ 1,540,080 652,638 1,543,936 998,547
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
----------- --------------
(UNAUDITED)
<S> <C> <C>
Balance Sheet Data:

Working Capital............................................... ($2,856,000) $ (3,618,000)
Total Assets.................................................. 11,019,000 9,457,000
Notes and Capital Leases...................................... 3,516,000 3,194,000
Common Stock.................................................. 18,508,000 19,317,000
Accumulated deficit........................................... (13,438,000) (15,832,000)
</TABLE>

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(1) For the year ended March 31, 1997, the Company sold the Oh La La! Division
in December 1996.

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

(3) For the year ended March 31, 1996, the Company's results include three
months of operations from the Paradise Bakery acquisition dated December 31,
1995.

(4) For the six months ended September 30, 1996, the Company's results include
six months of operations from the Oh La La! Division sold in December 1996.

(5) Adjusted for the December 19, 1997, 1 for 10 reverse stock split.

6
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RISK FACTORS

THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, IN EVALUATING AN INVESTMENT IN
THE COMPANY'S COMMON STOCK, THE FOLLOWING FACTORS, IN ADDITION TO THE OTHER
INFORMATION AND FINANCIAL DATA INCLUDED HEREIN AND INCORPORATED HEREIN BY
REFERENCE.

HISTORICAL LOSSES

Since its inception, the Company has never earned a profit and the Company's
operations have required, rather than provided, cash each year. In order to meet
these cash requirements, the Company has from time to time sold Common Stock,
borrowed short-term, sold Company assets and issued convertible debt. The
Company's net loss for the fiscal years ended March 31, 1997 and 1996 were
$5,326,000 and $3,966,000, respectively. Since then, the Company has suffered
additional losses of $811,000 for the quarter ended June 30, 1997 and $1,583,000
for the quarter ended September 30, 1997. There can be no assurance that such
losses will not continue or increase in the future, or that the Company will
become profitable in the future.

ACCUMULATED DEFICIT AND FUTURE LOSSES

As of September 30, 1997, the Company had an accumulated deficit of
$15,832,000. The Company anticipates that the size of its losses will decrease
due to anticipated development and acquisition of new Company-owned and
franchised Paradise Bakery locations in the United States and Canada. However,
if such developments are delayed and the Company does not realize such increased
sales, its losses are likely to remain at or near previous levels.

Effective December 31, 1997, the Company sold substantially all of the
assets of its Java Centrale franchise system consisting primarily of the royalty
rights to 20 operating franchised cafes and the assets of one Company-owned
store. Effective December 13, 1996, the Company sold its Oh La La! Division,
consisting of 10 retail outlets and one bakery. The sale of the these assets is
expected to facilitate the development of the Company's Paradise Bakery
operations by simplifying the mix of the Company's cafe lines and freeing
Company resources for the development of its remaining cafes and potential cafe
locations. The Company's operating plan, assuming the successful completion of
fund raising efforts, anticipates opening 10 new Company-owned and 15 franchised
Paradise Bakery cafes during calendar 1998. The Company may also consider
franchising some or all of its Company-owned Paradise Bakery cafes in order to
free the associated capital for further expansion of this system, including the
opening of both Company-owned and franchised cafe locations.

Until this network of Company-owned and franchised Paradise Bakery cafes is
more fully developed, however, the Company will be dependent upon other sources
of income, such as franchisee fees, which cannot be predicted as to timing or
dollar amount. Delays in the development of the Company's cafes, as well as any
potential future acquisitions or strategic mergers, could extend continuing
losses and result in the need for additional financing.

All of the Selling Current Shareholders, are subject to a specific
restriction on their ability to resell their Shares. As described elsewhere
herein, (see "Plan of Distribution" and "Selling Shareholders-- Origin of the
Shares Offered", below) the Selling Current Shareholders were all investors in a
private offering of Common Stock and Common Stock Purchase Warrants (the
"Units") which took place in late 1997. Under the terms of the offering, all of
those investors took their Units subject to a provision that for a period of one
year from the date on which they purchased their Units they would not be able to
publicly resell the shares of Common Stock which they then purchased, or the
shares which they would be able to obtain upon the exercise of their Warrants,
without the prior written consent of the Placement Agent for the Units offering,
E. C. Capital, Ltd. For all of the Selling Current Shareholders that period will
have expired in October of 1998. Prior to that time, the Current Selling
Shareholders may not publicly sell their Shares, through the use of this
Prospectus or otherwise, without E. C. Capital's prior written consent.

7
<PAGE>

A list of the Selling Current Shareholders is incorporated in the list of
Selling Shareholders under the heading "Selling Shareholders", below. The
Selling Current Shareholders, who are subject to the restriction described in
the foregoing paragraph, include all those Selling Shareholders who or which are
indicated on that list as currently holding outstanding Company shares.

RELIANCE ON GROWTH FOR PROFITABILITY

As of December 31, 1997, the Company had a total of 51 Company-owned and
franchised Paradise Bakery & Cafes open and operating. The Company currently is
projecting to open, either on its own or through franchisees, up to 28 cafes
during fiscal 1999, and approximately 50 cafes during fiscal 2000. If the
foregoing timetable is maintained, and the Company's cost structure remains
comparatively stable, the Company should achieve profitability on or before
March 31, 1999. There can be no assurance, however, that the Company or its
franchisees will be able to open the planned new cafes and kiosks or that they
can be operated profitably. The Company's ability to expand will depend upon a
number of factors, including selection and availability of suitable locations
and franchisees; negotiation of acceptable lease terms; the securing of required
state and local permits and approvals; adequate supervision of construction;
hiring, training and retention of skilled management and other personnel;
availability of adequate financing; and other factors, many of which are beyond
the Company's control.

RELIANCE ON ADDITIONAL FUNDING SOURCES

The Company requires additional funding to implement its business plan. The
Company anticipates that the Selling Shareholders will exercise their Warrants
described elsewhere herein, however, there can be no assurance that these
Warrants will be exercised. Proceeds from these Warrants will be used primarily
for the retirement of existing long-term debt obligations. The Company plans on
raising additional funds through the issuance of common, preferred or debt
securities, the sale of assets or through a commercial bank credit facility. The
inability of the Company to raise additional funds would have an adverse affect
on the Company's ability to implement its business plan.

SUBSTANTIAL COMPETITION

Paradise Bakery competes with a variety of restaurant concepts, many of
which are located in enclosed malls. Some competition comes from similar
concepts, such as, Au Bon Pain, which is a bakery/cafe concept, or
sandwich/salad concepts, such as Wall Street Deli. Other types of competitors
are strictly bakery product driven, such as, Cinnabon and Mrs. Fields. The
Company believes it distinguishes itself from most competitors with its menu
mix, positioning, and pricing.

FRANCHISE OPERATIONS

The Company's expansion strategy is based on growing its Paradise Bakery
subsidiary. This franchise system will be expanded by allowing existing
franchises to add new locations and by developing new franchise locations
outside the current system.

The Company currently is in the process of renewing all of its Uniform
Franchise Offering Circulers for the states requiring such registration. Under
the laws of those states, Paradise Bakery, Inc. is only able to offer or sell a
new franchise with an approved filing. There can be no guarantee that all the
relevant state franchise regulators will approve these filings. Any material
failure to obtain such approvals in a timely manner could have a substantially
harmful effect on the Company's business plan.

UNPREDICTABLE FRANCHISEE REVENUES

Historically, revenues from the Company's franchisees have been an important
part of the Company's revenues and cash flow. The Company is actively pursuing
efforts to develop additional franchisee operations, as well as to extend its
network of Company-owned cafes. However, the development of the

8
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Company's franchise system is unpredictable as to timing and the amount of
income, which may be produced by individual franchisees.

LIQUIDITY; LIMITED CAPITAL RESOURCES

At the Company's current level of development, including its Paradise Bakery
subsidiary, it does not generate net cash from operations. To fund its
operations, the Company requires either additional financing, sales of
additional franchises, or a substantial increase in its network of Company-owned
and or franchised cafes and kiosks. For the years ended March 31, 1997 and 1996,
the Company incurred a net loss of $5,326,000 and $3,966,000 and used net cash
of $3,062,000 and $2,391,000 in operating activities. For the six months ended
September 30, 1997 and 1996, the Company incurred, on a consolidated basis, a
net loss of $2,394,000 and $1,511,000 and used net cash of $195,000 and
$1,138,000. The Company has developed a specific operating plan to meet the
ongoing liquidity needs of the Company's operations both for the year ended
March 31, 1998, and thereafter.

Management believes that the Company's operating and financing plan will, if
carried out successfully will be sufficient to meet the Company's liquidity
needs for the year ended March 31, 1998 and thereafter. Based on the Company's
current cost structure, other expense calculations, the current and anticipated
revenue streams, including sales of new franchises, and the operating income
expected to be produced by the Company's Paradise Bakery subsidiary, the Company
estimates that it will break even on cash flow for the quarter ended December
31, 1998, assuming it succeeds in maintaining its schedule for the opening of
new Company and franchisee-owned cafes. The Company does not expect to achieve
profitability, however, until the quarter ended March 31, 1999, and then only if
the Company's growth projections can be met and its cost structure remains
stable, of which there can be no assurance (see "--Reliance on Growth for
Profitability" above). However, there can be no assurance that enough new
franchises will be sold to provide the necessary liquidity, or that the
Company's liquidity goals will be reached in the immediate future, if ever.

DEPENDENCE ON ONE PRODUCT-LINE

As a result of the Company's recent disposition of the Java Centrale
franchise system, the Company's primary source of revenue is derived from its
wholly-owned subsidiary Paradise Bakery Inc. Paradise Bakery features menu items
that include, depending upon the location, specialty soups, salads and
sandwiches, as well as an assortment of bakery products, including cookies,
muffins, croissants and desserts that are freshly prepared and baked daily at
each location.

GEOGRAPHIC CONCENTRATION

A majority of the currently operating Company-owned or franchised cafes are
located in the Western-half of the United States. Accordingly, the Company is
susceptible to fluctuations in its business caused by adverse economic
conditions that have occurred from time to time. In addition, consumer
preferences and tastes vary from region to region, and there can be no assurance
that consumers located in the regions in which the Company intends to expand
will be as receptive to specialty coffees as consumers in existing markets.

DEPENDENCE ON KEY PERSONNEL

Management of the Company is dependent to a large degree on the services of
Gary C. Nelson, Bradley B. Landin, Thomas A. Craig, and Jeffrey W. Dudley. Loss
of the services of any of these individuals could have a material adverse effect
on the Company's business. Although the Company has entered into employment
agreements with each of the officers named above, it does not maintain key man
life insurance for any of them. In addition, the Company believes that in order
to succeed in the future it

9
<PAGE>
will be required to continue to attract, retain and motivate additional highly
skilled executive, sales and other employees.

LIMITED REGISTRATION PERIOD

The Company does not intend to maintain indefinitely the effectiveness of
the Registration Statement of which this Prospectus forms a part. From and after
January 31, 2000, the Registration Statement will no longer be effective (unless
the Company has elected to extend its effectiveness), and once the Registration
Statement has been allowed to lapse, the shares described herein may no longer
be sold in reliance upon this Prospectus or the Registration Statement.

POSSIBLE FUTURE ISSUANCES OF COMMON STOCK AND OTHER SECURITIES

Additional Common Shares of the Company may be issued at any time by the
Board of Directors, without shareholder approval, although issuances during the
three years following the closing of this Offering will require the prior
approval of the E.C. Capital, Ltd., the Placement Agent for the private offering
described below (see "Selling Shareholders--Orgin of the Securities Offered").
The issuance of any such additional Common Shares may have an adverse effect on
the market price of the Common Shares offered hereby, and could cause dilution
to the Company's then-existing shareholders. As a matter of corporate policy,
the Company intends to issue shares of its Common Stock as part of the
consideration for future acquisitions and other transactions, where the use of
such shares appears to be appropriate and cost-effective, or as a means of
compensating and providing incentives to the Company's officers, directors, and
consultants.

Shares of preferred stock or other securities of the Company may also be
issued by the Board of Directors, without shareholder approval, on such terms as
the Board may determine. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. Moreover, although the ability
to issue preferred stock may provide flexibility in connection with possible
acquisitions and other corporate purposes, such issuance may make it more
difficult for a third party to acquire, or may discourage a third party from
acquiring a majority of the voting stock of the Company.

STOCK PRICE VOLATILITY

The price of the Company's Common Stock is subject to significant volatility
due to fluctuations in revenues, earnings, capitalization, liquidity, press
coverage, and financial market interest. Market perceptions of the Company's
recent or potential performance in its various local market areas, economic
trends generally, and the Company's relative degree of success with respect to
its competition, among other factors, could cause the price of its stock to vary
significantly in the short and middle term regardless of whether such
perceptions prove to be accurate in the long run.

The Company's Common Stock is currently traded on the NASDAQ SmallCap
Market. This market has, from time to time, experienced extreme price and volume
fluctuations which often have been unrelated to the operating performance of
particular companies. There can be no assurance that the NASDAQ SmallCap Market
will not in the future experience more severe fluctuations than are
contemporaneously experienced by other U.S. stock markets and exchanges, such as
the New York Stock Exchange or the American Stock Exchange, or the NASDAQ
National Market System. Regulatory developments and economic and other external
factors, as well as period-to-period fluctuations in financial results of the
Company may have a significant impact on the market price of the Common Stock.

The price of the Company's Common Stock is subject to significant volatility
due to fluctuations in revenues, earnings, capitalization, liquidity, press
coverage, financial market interest, and general market conditions. Some of
these factors may be exacerbated because the food service and coffee beverage

10
<PAGE>
industries in which the Company operates are highly competitive and dominated by
a few exceptionally strong companies.

NO CASH DIVIDENDS

The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying any such dividends in the foreseeable future.

GENERAL LIABILITY AND COMMERCIAL INSURANCE; PRODUCT LIABILITY INSURANCE

Although the Company maintains general liability and commercial insurance
with coverage up to $2,000,000, product liability insurance with coverage up to
$1,000,000, and a $5,000,000 umbrella policy, there can be no assurance that
this insurance will be adequate to protect the Company against any general,
commercial and/or product liability claims. Any general, commercial and/or
product liability claim, which is not covered by such policy, or is in excess of
the limits of liability of such policy, could have a material adverse effect on
the financial condition of the Company. In the event the Company incurs a
material loss in excess of current insurance coverages, there can be no
assurance that the Company will be able to continue its insurance on reasonable
financial terms.

GOVERNMENTAL REGULATION

The food service industry is subject to extensive federal, state and local
government regulations relating to the development and operation of food service
outlets, including laws and regulations relating to building and seating
requirements, the preparation and sale of food, cleanliness, safety in the work
place, accommodations for the disabled, and the Company's relationship with its
employees, such as minimum wage requirements, discriminatory practices, overtime
and working conditions and citizenship requirements. The Company-owned and
franchised cafes and carts are subject to various federal laws and regulations,
including without limitation, the Fair Labor Standards Act, the Americans With
Disabilities Act, the Department of Agriculture, the Food & Drug Administration,
and numerous State and local laws and regulatory agencies. The failure to obtain
or retain necessary food licenses or substantial increases in the minimum wage
could adversely affect the operation of the Company. Furthermore, federal
government proposals relating to health care may result in higher costs for the
Company. The Company is also subject to federal regulations and certain state
laws, which regulate the offer and sale of franchises to its franchisees.

EFFECT OF RECENT CHANGES TO NASD SMALLCAP MARKET LISTING RULES

The NASD has recently adopted a number of changes to its listing and
maintenance criteria for companies quoted on the NASDAQ SmallCap Market. These
changes are scheduled to go into effect on February 23, 1998.

The NASD's new rules require, among other things, that the minimum bid price
for any stock quoted on that market is $1.00; if the minimum bid price for a
listed company's stock should drop below $1.00 for a material period of time, it
would become eligible for delisting from the NASDAQ SmallCap Market List.
Current NASD rules provide that one or the other (but not necessarily both) of
the following criteria must be met: either (a) the minimum bid price for the
Company's Common Stock must be at least $1.00 per share, or alternatively (b)
the aggregate market value of the Company's public float must be at least
$1,000,000 and the Company must have at least $2,000,000 in combined capital and
surplus. Although the Company met the old listing criteria, it may not meet the
new standards in this respect. For the entire period between January 1 and
December 31, 1997, the daily low price bid per share for the Company's Common
Stock ranged from a low of $2.28 to a high of $6.88. Under the NASD's revised
rules if the daily minimum bids for the Company's Common Stock do not remain
above a $1.00 per share, the Company may need to consider effectuating another
reverse stock split or taking some other corporate action in

11
<PAGE>
order to be confident of its continuing ability to meet the NASD's new minimum
bid requirements in this respect.

Another of the new criteria adopted by the NASD, which will take effect
February, 23, 1998, is that companies having securities listed on the SmallCap
Market maintain at least one of the following: either (a) net tangible assets of
$2,000,000, or (b) a market capitalization of $35,000,000, or (c) annual net
income for two of the previous three years of at least $500,000. The Company
currently does not meet any of the criteria described above. However as a result
of its capital raising efforts, including the exercise of Warrants described
herein, the Company anticipates that it will meet the net tangible assets
criteria by February 23, 1998.

In the event the Company is unable to continue to meet the listings criteria
adopted by the NASD, the Company's Common Stock could ultimately be de-listed
from the NASDAQ SmallCap Market List. In such an event, the trading market for
its Common Stock would immediately become far less liquid than it is at present.

USE OF PROCEEDS

The Company will not receive any proceeds from any sale by the Selling
Shareholders of any of the shares for which they now hold or may acquire in the
future by the exercise of Warrants. All proceeds from such transactions will go
to the holders of the Shares. All proceeds derived from the exercise of the
Warrants will be used for general corporate purposes including primarily the
reduction of existing corporate debt.

DIVIDEND POLICY

The Company has not paid any cash dividends on its Common Stock. It is the
present policy of the Company to retain earnings to finance the growth and
development of its business, and therefore the Company does not anticipate
paying cash dividends on its Common Stock in the foreseeable future.

12
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company (i) as of
September 30, 1997 and (ii) as adjusted to reflect the sale of the Units
described elsewhere herein (see "Selling Shareholders-- Origin of the Securities
Offered") and the exercise of 3,555,000 Warrants held by the Selling
Shareholders.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------
ACTUAL ADJUSTED
-------------- --------------
<S> <C> <C>
Accounts Payable.................................................................. $ 2,001,000 $ 563,000
Notes Payable..................................................................... 3,082,000 1,000,000
Capital Lease Obligations......................................................... 112,000 112,000
Stockholders' equity:
Preferred Stock: 25,000,000 shares authorized; no shares outstanding, actual and
as adjusted................................................................... -- --
Common Stock: 50,000,000 shares authorized; 2,200,504 shares issued and
outstanding; at September 30, 1997(1) 5,885,504 shares issued and outstanding
as adjusted(1)(2)............................................................. 19,317,000 24,262,000
Accumulated Deficit............................................................... (15,832,000) (16,048,000)
-------------- --------------
Total stockholders' equity.................................................... 3,485,000 8,214,000
-------------- --------------
Total capitalization.......................................................... $ 8,680,000 $ 9,889,000
-------------- --------------
-------------- --------------
</TABLE>

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

(1) As adjusted to reflect (i) the sale of the Units, including 625,000 shares
of Common Stock, and (ii) a one-for-ten reverse stock split, approved at the
Company's 1997 annual Meeting of Shareholders on November 25, 1997, which
became effective on December 19, 1997.

(2) As adjusted to reflect the potential exercise of all of the 3,550,000
outstanding Common Stock Purchase Warrants held by the Selling Shareholders.
See ("Selling Shareholders," below.)

13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

GENERAL

The Company began operations on March 5, 1992, and operated as a development
stage enterprise through the end of its fiscal year ended March 31, 1993. As a
development stage enterprise, the Company focused its efforts on financial
planning, raising capital, research and development, establishing sources of
supply, developing markets, organizing the corporation, acquiring assets, and
developing its business plan. During this time, the Company completed the filing
of its Uniform Franchise Offering Circulars.

Since inception, the Company has never earned a profit and the Company's
operations have required, rather than provided, cash every year. In order to
meet these cash requirements, the Company has from time to time sold Common
Stock, borrowed short-term money, sold company assets and issued convertible
debt. The net losses for the fiscal years ended March 31, 1997 and 1996 were
$5,326,000 and $3,966,000, respectively. The net losses for the six months ended
September 30, 1997 and 1996, were $2,394,000 and $1,511,000, respectively. The
Company has an accumulated deficit of $13,438,000 and $15,832,000 as of March
31, 1997 and September 30, 1997, respectively. There can be no assurance that
losses will not continue, or that the Company, as currently structured, will
become profitable in the future. In the fiscal year ended March 31, 1997, the
Company sold assets, raised debt and sold equity, and reduced expenses to meet
its ongoing liquidity needs. During the six months ended September 30, 1997, the
Company had Warrants exercised, borrowed short-term funds and sold equity to
meet ongoing liquidity needs. Currently the Company has a material working
capital shortfall.

As of December 31, 1997 substantially all of the assets of the Java Centrale
franchise system were sold. The selling of this franchise system coupled with
the Company's efforts to reduce administrative overhead has positioned the
Company to develop its more successful Paradise Bakery and Cafe subsidiary.
However the Company's continued operating losses to this point have left it in a
materially weak cash-flow position.

Over the last year, the Company's financing plan to meet its ongoing
liquidity needs has been to raise new equity through private placements,
refinance or obtain new debt funding and sell assets of the Company's operation.
There can be no assurance that any similar financing, asset sales or equity
placements will continue to be available to the Company in the future.
Consequently, under current circumstances the Company does not anticipate that
it will be able to continue existing operations in the future unless it can
obtain new short-term or long-term financing, raise new equity or execute a
significant sale of assets. The Company's Board of Directors is currently
evaluating a number of options for the resolution of its immediate and long-term
financial needs, including among other potential alternatives, obtaining a
long-term loan secured by its Paradise Bakery assets, a private and/or public
sale of Company stock and/or other securities, and a strategic merger. Some of
the alternatives currently being studied by the Company's Board of Directors
might result in a change in the management and/or control of the Company.

14
<PAGE>
(ii) effecting a one for ten reverse stock split of the outstanding shares of
Common Stock, and (iii) moving the Company's state of incorporation from
California to Delaware. All of the above proposals were approved by the
Company's shareholders at its annual meeting held November 25, 1997. The Company
has agreed to pay ECC a 10% commission on all sales of units and a 3%
non-accountable expense reimbursement. Additionally, the Company has issued to
ECC 500,000 "A" and 500,000 "B" Warrants, as partial compensation for its
efforts in completing the ECC Offering, for a total of 1,000,000 Warrants in
all. The Company has also agreed to retain ECC as an advisor for the next three
years at a fee of $3,000 per month and to pay ECC a 5% warrant solicitation fee
for any of the investor Warrants which are exercised. The Company has also
agreed not to raise debt or equity financing during this three-year period other
than with consent of ECC and to allow a ECC designee to observe all meetings of
the Company's Board of Directors. Further, all of the Company's officers and
directors have executed lock-up agreements with ECC whereby they have agreed not
to transfer, assign, sell or otherwise dispose of any of their Company shares,
except with the consent of ECC, until at least one year after the effective date
of the registration statement.

As of September 30, 1997, the Company operated under two brands, Java
Centrale and Paradise Bakery and Cafe as compared to September 30, 1996, which
the Company was then operating under three brands, Java Centrale, Oh La La! and
Paradise Bakery and Cafe. The following table represents the Company's
operations at September 30, 1997, and September 30, 1996:

<TABLE>
<CAPTION>
OPERATING UNITS AS OF SEPTEMBER 30, 1997
--------------------------------------------------------------
CAFE CARTS/ KIOSKS
------------------------------ ------------------------------
COMPANY FRANCHISED COMPANY FRANCHISED
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Java Centrale.................................. 1 23 -- 8
Oh La La!...................................... -- -- -- --
Paradise Bakery................................ 16 32 -- --
Total........................................ 17 55 -- 8
</TABLE>

<TABLE>
<CAPTION>
OPERATING UNITS AS OF SEPTEMBER 30, 1996
--------------------------------------------------------------
CAFE CARTS/ KIOSKS
------------------------------ ------------------------------
COMPANY FRANCHISED COMPANY FRANCHISED
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Java Centrale.................................. 2 20 -- 8
Oh La La!...................................... 10 -- 1 --
Paradise Bakery................................ 16 35 -- --
Total........................................ 28 55 1 8
</TABLE>

The Company entered into agreements with franchisees to open three cafes
during the quarter ended September 30, 1997, as compared to entering into
agreements with franchisees to open five cafes during the quarter ended
September 30, 1996. The Company entered into agreements with franchisees to open
three cafes during the six months ended September 30, 1997, as compared to
entering into agreements to open 10 cafes during the six months ended September
30, 1996.

The Company opened one franchisee-owned cafe during the quarter ended
September 30, 1997, as compared to opening two franchisee-owned cafes during the
quarter ended September 30, 1996. The Company opened three franchisee-owned
cafes during both the six months ended September 30, 1997, and September 30,
1996.

No Company-owned cafes were closed in the quarter ended September 30, 1997,
as compared to closing one Company-owned cafe, which was operated under a
management agreement, in the quarter ended September 30, 1996. The Company
closed one Company-owned cafe and two franchisee-owned cafes in the six months
ended September 30, 1997, as compared to closing two Company-owned cafes and one
franchisee-owned cafe during the six months ended September 30, 1996. Cafe
closures are primarily a result of poor financial performance.

15
<PAGE>
No Company-owned locations were sold to franchisees during the quarter ended
September 30, 1997, as compared to selling two Company-owned locations during
the quarter ended September 30, 1996. During the six months ended September 30,
1997, no Company-owned locations were sold as compared to selling five
Company-owned cafes to franchisee and three Company-owned carts to a licensee
for the six months ended September 30, 1996.

In December of 1996, the Company sold the assets of Oh La La! to Good Food
Fast Companies, Inc. for $1,250,000 in cash, 233,333 shares of preferred stock
and a $750,000 convertible note receivable due in 1999. The assets included ten
operating locations and a cart licensee. On March 31, 1997, the Company agreed
with GFF to exchange $250,000 of the convertible note receivable for the
assumption of certain liabilities of the Company, exchange 233,333 preferred
shares for 233,333 shares of Common Stock, accelerate a payment of $145,000 due
under the note receivable to May 1997 and convert the remaining $355,000 balance
of the note into 40,000 shares of GFF Common Stock. The Common Shares of GFF at
September 30, 1997 have been valued at $2.00 per share based on the estimated
fair value of such shares at the time they were acquired. As of September 30,
1997, the Company owned approximately 30% of the outstanding Common Shares of
GFF.

Effective December 31, 1997, the Company sold substantially all of the
assets of its Java Centrale franchise system. The Company conducts its business
of selling coffee and bakery products to consumers through its wholly-owned
subsidiary Paradise Bakery, Inc., which both operates and franchises upscale
bakery cafes. The Company received $1,500,000 in consideration for this
transaction. The consideration consists of $1,000,000 in a combination of future
royalties to be received by the buyer and credits from purchases by the Company
from the buyers wholesale bakery operation. In addition the Company received
5,000,000 shares of the buyers restricted Common Stock valued at $500,000 at the
close of the transaction.

RESULTS OF OPERATIONS

The Company's revenues are currently derived from Company-owned locations,
initial franchise fees, resulting from cafe openings, franchise royalties,
equipment sales, and product overrides on sales to its franchisees. Franchise
fees range from $15,000 to $35,000 per cafe. The Company is entitled to 4%-6% of
the gross receipts from each franchised cafe and 2%-10% of the gross receipts
from each franchised cart. Product overrides range from 3% to 10% of the total
purchase of coffee from the Company's contract roaster. At September 30, 1997,
the Company operated under two brands, Java Centrale and Paradise Bakery and
Cafe.

FISCAL 1997 AS COMPARED TO FISCAL 1996

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

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

Revenues from the Company's franchising operations increased $144,000, or
36% to $539,000 for the fiscal year ended March 31, 1997, from $395,000 for the
fiscal year ended March 31, 1996. This increase is a result of the following
recognized franchise fees: $128,000 associated with the opening of five Java
Centrale franchisee-owned cafes and two Paradise Bakery franchisee-owned cafes,
$117,000 associated

16
<PAGE>
with the sale of two Company-owned Paradise Bakery cafes to one franchisee and
three Company-owned Java Centrale cafes to two franchisees, $10,000 associated
with the transfer of ownership of two Java Centrale franchisee-owned locations,
$45,000 forfeited fees associated with four Java Centrale franchisees and one
Paradise Bakery franchisee, $140,000 in forfeited franchise fees directly
related to the termination of the joint venture agreement, and $83,000
associated with the licensing rights agreement to South Korea for the fiscal
year ended March 31, 1997, as compared to the recognition of franchise fees
during the fiscal year ended March 31, 1996 of $330,000 associated with opening
15 franchisee-owned Java Centrale cafes and $65,000 in association with
forfeited Java Centrale franchise fees.

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

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

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

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

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

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

For the year ended March 31, 1997, the Company had an operating loss of
$4,926,000, a net loss of $5,326,000, and a loss per share of $4.62, as compared
to an operating loss of $4,038,000, a net loss of $3,966,000, and a loss per
share of $6.08 for the fiscal year ended March 31, 1996. The increased operating
loss of $888,000 is primarily a result of higher general and administrative
expenses as described above totaling $416,000, a loss of $275,000 relating to
the conversion of a note receivable into Common Shares,

17
<PAGE>
settlement expenses relating to two franchisees and a former employee of
Paradise Bakery amounting to $336,000, increased bad debt expenses of $398,000
resulting from certain franchisee related notes and royalties, a loss from the
termination of the joint venture in Florida totaling $257,000 virtually the same
expense relating to the closure of cafes at $413,000 for each fiscal year and
higher depreciation and amortization expenses associated with the acquisition of
Paradise Bakery totaling $205,000. The operating loss improved this fiscal year
as compared to last fiscal year as a result of higher operating margins
associated with the operations of Paradise Bakery for 12 months for the fiscal
year ended 1997 as compared to three months for the fiscal year ended 1996
amounting to $752,000 and lower losses for the operations of Java Centrale
totaling $180,000.

The increased net loss of $1,360,000 for this fiscal year ended March 31,
1997 as compared to fiscal year 1996 is a result of the above increased
operating loss of $888,000, and an increase in interest expense and fees
associated with the Company's financings of $545,000.

FISCAL 1996 AS COMPARED TO FISCAL 1995

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

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

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

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

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

Total expenses for the year ended March 31, 1996 were $13,593,000, an
increase of $9,782,000, or 257%, over expenses of $3,811,000 for the year ended
March 31, 1995. The principal components of the increase in expenses resulted
from $7,126,000 in operating expenses associated with the acquisition of the Oh
La La! locations and the acquisition of Paradise Bakery. Additionally, the
increase resulted from the Company recognizing during the fiscal year end 1996,
a one-time non-recurring expense of $453,000 relating to the issuance of shares
below market pursuant to a consulting agreement to develop acquisitions,
franchising opportunities and consult regarding investment relation matters for
the Company. Additionally, there was an increase in the cost of equipment,
selling, general and administrative expenses, depreciation and amortization and
other operating costs from the addition of Oh La La! and Paradise Bakery.

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

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

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

For the year ended March 31, 1996, the Company had an operating loss of
$4,038,000, a net loss of $3,966,000, and a loss per share of $6.08, as compared
to an operating loss of $2,035,000, a net loss of $1,894,000, and a loss per
share of $4.22 for the fiscal year ended March 31, 1995. The increased operating
loss and net loss primarily resulted from higher expenses associated with the
Java Centrale system, increased administrative salaries, legal, accounting,
consulting and investor relations, depreciation and amortization, and increased
expenses associated with franchisee recruitment, support and training and the
recognition of $410,000 in losses associated with cafe and cart closures.
Additionally, the increase resulted from the Company recognizing during the
fiscal year end 1996, a one-time non-recurring expense of $453,000 relating to
the issuance of shares below market pursuant to a consulting agreement to
develop acquisitions, franchising opportunities and consult regarding investment
relation matters for the Company.

QUARTER ENDED SEPTEMBER 30, 1997 AS COMPARED TO 1996

Total Company revenues for the quarter ended September 30, 1997 totaled
$2,649,000, as compared to $3,992,000 for the quarter ended September 30, 1996,
a decrease of $1,343,000, or 34%. The principal components of this decrease
were:

The Company's revenues from Company-owned retail operations decreased by
$1,283,000 or 36%, to $2,259,000 for the quarter ended September 30, 1997, from
$3,542,000 for the quarter ended September 30, 1996. This decrease resulted
primarily from a decrease of $987,000 associated with revenues from the Oh La
La! Division, which was sold in December 1996, a decrease of $232,000 associated
with the revenues from the operations of Company-owned cafes which were closed
or sold, during fiscal year 1997, and a decrease in revenues from the
Company-owned Paradise Bakery locations of approximately $64,000.

Revenues from the Company's franchising operations decreased $69,000, or 56%
to $54,000 for the quarter ended September 30, 1997, from $123,000 for the
quarter ended September 30, 1996. This decrease is a result of recognized
franchise fees of $25,000 associated with the transfer of one Java Centrale
franchisee-owned cafe and $29,000 associated with the opening of one Paradise
Bakery franchisee-owned cafe for the quarter ended September 30, 1997, as
compared to the recognition $108,000 in franchise fees associated with both the
opening of one Java Centrale franchise-owned cafe and the sale of two Java
Centrale Company-owned cafes to a franchisee in addition to $15,000 associated
with the opening of one franchisee-owned Paradise Bakery cafe during the quarter
ended September 30, 1996.

Revenues from the Company's royalties of $318,000 for the quarter ended
September 30, 1997 and $317,000 for the quarter ended September 30, 1996,
remained virtually the same. Royalties associated with

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Java Centrale decreased $6,000 to $102,000 for the quarter ended September 30,
1997, as compared to $108,000 for the quarter ended September 30, 1996, due to
the closure of franchisee-owned cafes. Additionally, royalties associated with
Paradise Bakery increased $7,000 to $216,000 for the quarter ended September 30,
1997, as compared to $209,000 for the quarter ended September 30, 1996, due to
increased revenues from franchisee-owed cafes.

Revenues from the Company's equipment sales increased $8,000 to $18,000 for
the quarter ended September 30, 1997 from $10,000 for the quarter ended
September 30, 1996. This increase primarily resulted from the sale of surplus
equipment.

Total expenses for the quarter ended September 30, 1997, were $4,030,000 a
decrease of $691,000, or 15%, over expenses of $4,721,000 for the quarter ended
September 30, 1996. The principal components of the decrease in expenses
resulted from:

The cost of food and beverage, labor and operating costs for the Company's
retail operations decreased $1,109,000 for the quarter ended September 30, 1997,
to $2,081,000 as compared to $3,190,000 for the quarter ended September 30,
1996. This decrease results primarily from a decrease of $813,000 in expenses
associated with the operating Oh La La! Division, which was sold in December
1996, a decrease in expenses of $306,000 associated with the operations of
Company-owned cafes, which was sold or closed during the fiscal year ended March
31, 1997, and approximately $10,000 associated with increased operating costs
associated with the operation of the Paradise Bakery Company-owned locations.

The Company's cost of equipment increased by $5,000 in the quarter ended
September 30, 1997, to $6,000 as compared to $1,000 for the quarter ended
September 30, 1996. This increase primarily resulted from the sale of surplus
equipment.

Selling, general, and administrative expenses increased $113,000 or 11%,
during the quarter ended September 30, 1997, to $1,122,000 from $1,009,000
during the quarter ended September 30, 1996. This increase results from
decreased expenses associated with the operations of the Oh La La! Division,
which sold in December 1996, totaling $42,000, decreased personnel cost of
$52,000, decreased marketing costs of $14,000, decreased travel expense of
$20,000, increased legal and accounting fees of $120,000 and increased investor
relations of $30,000. Additionally, there were increased consulting fees of
$95,000, of which $29,000 was associated with the Companies capital raising
efforts.

For the quarter ended September 30, 1997, the Company had an operating loss
of $1,381,000, a net loss of $1,583,000, and a loss per share of $0.96, as
compared to an operating loss of $731,000, a net loss of $748,000, and a loss
per share of $0.68 for the quarter ended September 30, 1996.

The operating loss increased $650,000 to $1,381,000 during the quarter ended
September 30, 1997 as compared to $731,000 during the quarter ended September
30, 1996. The increase is a result of decreased revenues and cost of company
sales totaling $198,000, higher selling, general and administrative expenses
totaling $113,000, decreased depreciation and amortization of $57,000 from the
sale of the Oh La La! Division, increased losses associated with a cafe closure
of $345,000, increased settlement expense of $31,000, bad debt expense of
$50,000 associated with certain franchisees related notes and royalties, and no
gain from the sale of assets during the quarter ended September 30, 1997, as
compared to a loss from the sale of assets of $30,000 during the quarter ended
September 30, 1996.

The net loss increased $835,000 to $1,583,000 during the quarter ended
September 30, 1997, as compared to $748,000 during the quarter ended September
30, 1996. The increased net loss of is primarily a result of the above increased
operating loss of $650,000, and an increase in interest expense and fees
associated with the Company's financing of $133,000, and associated with both
the sale of the Oh La La! Division and the sale and closure of cafes, interest
income decreased $13,000 and other income decreased $39,000.

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<PAGE>
SIX MONTHS ENDED SEPTEMBER 30, 1997 AS COMPARED 1996

Total Company revenues for the six months ended September 30, 1997, totaled
$5,197,000, as compared to $8,481,000 for the six months ended September 30,
1996, a decrease of $3,284,000, or 39%. The principal components of this
decrease were:

The Company's revenues from Company-owned retail operations decreased by
$3,112,000 or 41%, to $4,444,000 for the six months ended September 30, 1997,
from $7,556,000 for the six months ended September 30, 1996. This decrease
resulted primarily from a decrease of $1,939,000 associated with revenues from
the Oh La La! Division, which was sold in December 1996, a decrease of $931,000
associated with the revenues from the operations of Company-owned cafes which
were closed or sold, during the fiscal year 1997 and a decrease in revenues from
the Company-owned Paradise Bakery locations of approximately $242,000.

Revenues from the Company's franchising operations decreased $99,000, or 49%
to $104,000 for the six months ended September 30, 1997, from $203,000 for the
six months ended September 30, 1996. This decrease is a result of recognized
franchise fees totaling $75,000 associated with the opening of two Java Centrale
franchisee-owned cafes and the transfer of one Java Centrale franchisee-owned
cafe in addition to $29,000 associated with the opening of one Paradise Bakery
franchisee-owned cafe for the six months ended September 30, 1997, as compared
to the recognition $148,000 in franchise fees associated with the opening of one
Java Centrale franchise-owned cafe, the sale of two Java Centrale Company-owned
cafes to a franchisee and forfeited franchise fees, in addition to $55,000
associated with the sale of two Paradise Bakery Company-owned cafes to a single
franchisee and the opening of one Paradise Bakery franchisee-owned cafe during
the six months ended September 30, 1996.

Revenues from the Company's royalties of $616,000 for the six months ended
September 30, 1997, and $614,000 for the six months ended September 30, 1996,
remained virtually the same. Royalties associated with Java Centrale decreased
$33,000 to $181,000 for the six months ended September 30, 1997, as compared to
$214,000 for the six months ended September 30, 1996, due to the closure of
franchisee-owned cafes. Additionally royalties associated with Paradise Bakery
increased $35,000 to $435,000 for the six months ended September 30, 1997, as
compared to $400,000 for the six months ended September 30, 1996 due to the
increases in revenues from franchisee-owed cafes.

Revenues from the Company's equipment sales decreased $75,000, or 69%, to
$33,000 for the six months ended September 30, 1997 from $108,000 for the six
months ended September 30, 1996. This decrease primarily resulted from
discontinuing the sale of equipment directly to franchisees in May of 1996.

Total expenses for the six months ended September 30, 1997, were $7,314,000,
an decrease of $2,684,000, or 27%, over expenses of $9,998,000 for the six
months ended September 30, 1996. The principal components of the decrease in
expenses resulted from:

The cost of food and beverage, labor and operating costs for the Company's
retail operations decreased $2,874,000, or 41% for the six months ended
September 30, 1997, to $4,087,000 as compared to $6,961,000 for the six months
ended September 30, 1996. This decrease results primarily from a decrease of
$1,672,000 in expenses associated with operating the Oh La La! Division, which
was sold in December 1996, a decrease in expenses of $964,000 associated with
the operations of Company-owned cafes, which were sold or closed during the
fiscal year ended March 31, 1997, and approximately $238,000 associated with
decreased operating costs associated with the operation of the Paradise Bakery
Company-owned locations.

The Company's cost of equipment decreased by $78,000, or 76%, for the six
months ended September 30, 1997, to $24,000, as compared to $102,000 for the six
months ended September 30, 1996. This decrease primarily resulted from
discontinuing the sale of equipment directly to franchisees in May of 1996.

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<PAGE>
Selling, general, and administrative expenses decreased $51,000 or 2%,
during the six months ended September 30, 1997, to $2,061,000 from $2,112,000
during the six months ended September 30, 1996. This decrease results from
decreased expenses associated with the operations of the Oh La La! Division,
which sold in December 1996, totaling $99,000, decreased personnel cost of
$209,000, decreased travel expense of $52,000, decreased marketing costs of
$27,000, increased investor relations of $26,000 and increased legal and
accounting fees of $109,000. Additionally, there were increased consulting fees
of $201,000, of which $93,000 was associated with the Companies capital raising
efforts.

For the six months ended September 30, 1997, the Company had an operating
loss of $2,117,000, a net loss of $2,394,000, and a loss per share of $1.55, as
compared to an operating loss of $1,517,000, a net loss of $1,511,000, and a
loss per share of $1.51 for the six months ended September 30, 1996.

The operating loss increased $600,000 to $2,117,000 during the six months
ended September 30, 1997, as compared to $1,517,000 during the six months ended
September 30, 1996. The increase is a result of lower revenues and cost of
company sales of $203,000, and lower selling, general and administrative
expenses totaling $51,000, decreased depreciation and amortization of $112,000
from the sale of the Oh La La! Division, increased losses associated from cafe
closures of $346,000, bad debt expense and settlement expense of $178,000
associated with certain franchisees related notes and royalties, and no gain
from the sale of assets during the six months ended September 30, 1997, as
compared to a gain from the sale of assets of $36,000 during the six months
ended September 30, 1996.

The net loss increased $883,000 to $2,394,000 during the six months ended
September 30, 1997, as compared to $1,511,000 during the six months ended
September 30, 1996. The increased net loss is a result of the above increased
operating loss of $600,000, and an increase in interest expense and fees of
$154,000, associated with the Company's financing, and decreased other and
interest income of $129,000, associated with the with both the sale of the Oh La
La! Division and the sale and closure of cafes.

LIQUIDITY AND CAPITAL RESOURCES

The Company's recent sale of the assets of its Java Centrale franchise
system will allow management to focus its efforts on the growth of its Paradise
Bakery subsidiary. This, coupled with the successful completion of the ECC
Offering and the exercise of the Warrants described elsewhere herein, should
improve the Company's liquidity and provide the Company with the opportunity to
attract other capital resources. Until the Warrants are exercised or some other
source of funding is obtained, there can be no assurance that these events will
occur and the Company will continue to have a material working capital
shortfall.

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<PAGE>
stock and/or other securities, a strategic merger, and the sale of assets. Some
of the alternatives currently being studied by the Company's Board of Directors
might result in a change in the management and/or control of the Company.

In the 1996 fiscal year, the Company issued 160,469 Common Shares for
$3,541,000 in proceeds in a series of private placements. The Company also
issued convertible debt in three separate private transactions totaling
$3,500,000. As of March 31, 1997, $2,054,000 had been converted into 331,118
Common Shares. During the quarter ended September 30, 1997, an additional
$249,000 of convertible debt had been converted into 133,520 shares of the
Company's Common Stock. As of September 30, 1997, $2,303,000 of convertible debt
had been converted into 464,639 shares of the Company's Common Stock.

The Company, as of December 31, 1997, owes $583,000 of on a loan secured by
the assets of Paradise Bakery. This note contains certain financial covenants of
which the Company is currently in default. The lender has agreed to forbear on
taking action on this note through March 31, 1998. The Company has remained
current with the required monthly payments under this note. The Company plans on
using proceeds from the exercise of Warrants to pay down a substantial, if not
all of, the outstanding principal balance of this note.

In July of 1996, Baycor, Gary C. Nelson, the Company's President and Chief
Executive Officer, and Steven J. Orlando, its then Chief Financial Officer,
agreed to loan the Company an aggregate of $175,000 from time to time on an
as-needed basis until April of 1997, when this line of credit would be
terminated and the sums then borrowed and outstanding would become due and
payable. The interest rate on the funds so advanced was prime plus 2%. The line
of credit was terminated as of March 31, 1997. In replacement, in April 1997 Mr.
Nelson advanced the Company $50,000 in exchange for a note secured by the
Company's assets, Mr. Orlando advanced the Company $31,000 in the form of
deferred salary for the period from December 1996 through March 1997, and Baycor
deferred receipt of salary and expenses accrued during the 1997 fiscal year
amounting to $145,000, without interest. In September 1997 the amount owed to
Mr. Nelson was reduced to $35,000 and the amount owed to Mr. Orlando was reduced
to $15,000, additionally each is owed accrued interest at the rate of prime plus
2%. The amount owed to Baycor as of the date of September 30, 1997 is $165,000.

In December of 1996, the Company sold the assets of its Oh La La! Division
to Good Food Fast Companies, Inc. "GFF" for $1,250,000 in cash, 233,333 shares
of preferred stock and a $750,000 convertible note receivable due in 1999. On
March 31, 1997, the Company agreed with GFF to exchange $250,000 of the
convertible note receivable for the assumption of certain liabilities of the
Company, exchange 233,333 preferred shares for 233,333 shares of Common Stock,
accelerate a payment of $145,000 due under the note receivable to May 1997 and
convert the remaining $355,000 balance of the note into 40,000 shares of GFF
Common Stock. The Common Shares of GFF at September 30, 1997, have been valued
at $2.00 per share based on the estimated fair value of such shares at the time
of the acquisition.

From July 1, 1997, to August 8, 1997, an additional $197,000 of convertible
debt was converted into 238,623 Common Shares. Additionally, in July 1997, the
Company agreed to restructure the remaining portion of the unconverted note,
totaling $1,000,000, into a note due no later than January 1, 1998, pledging
shares of Paradise Bakery, Inc. as collateral and adding $250,000 to the balance
of the note to eliminate the conversion feature of the note. The Company will
recognize the $250,000 as additional interest expense over the remaining term of
the note. As of December 31, 1997, the Company negotiated an extension of this
note to April 1, 1998. As consideration for this extension, the Company agreed
to a $52,000 extension fee and issued 20,000 Warrants at a exercise price of
$1.80 per Common Share.

In September and October of 1997, the Company raised net proceeds of
$544,000 through a private offering of Common Stock and Common Stock Purchase
Warrants (the "Units") for which E. C. Capital, Ltd. served as the Placement
Agent. (See "Selling Shareholders--Origin of the Shares Offered".) Under the
terms of that offering, the holders of the Units (generally referred to herein
as the "Selling Current Shareholders") are subject to the restriction that for a
period of one year from the date on which they purchased their Units they may
not publicly resell the shares of Common Stock which they then purchased

23
<PAGE>

as part of the Units, or the shares which they would be able to obtain upon the
exercise of their Warrants, without the prior written consent of E. C. Capital,
Ltd. For all of the Selling Current Shareholders, the restricted period will
have expired by no later than October of 1998. Prior to that time, such
investors may not publicly sell their Shares, through the use of this Prospectus
or otherwise, without E. C. Capital's prior written consent. A list of the
Selling Current Shareholders is incorporated in the list of Selling Shareholders
under the heading "Selling Shareholders", below. The Selling Current
Shareholders, who are subject to the restriction described in the foregoing
paragraph, include all those Selling Shareholders who or which are indicated on
that list as currently holding outstanding Company shares.

In the event that all of the Warrants described herein are exercised,
$4,558,000 of net proceeds would be obtained by the Company. Of that amount,
$ represents the net proceeds from the anticipated exercise of the Class
A and Class B Warrants which are held by the Selling Current Shareholders, and
which are subject to the restriction described in the foregoing paragraph. The
remainder of the Warrants are not subject to such restrictions, however. There
can be no assurance that all, or any, of the Warrants described herein will be
exercised, in the immediate future or at all.

During the six months ended September 30, 1997 the Company borrowed an
additional $275,000 thereby increasing the balance on the note to Alta
Petroleum, Inc. to $575,000. Alta Petroleum extended the due date or the note to
September 30, 1997. The Company is currently negotiating with Alta Petroleum to
extend the term of this note.

In November 1997, the Company borrowed $250,000 from The Harmat
Organization, a Delaware corporation, to meet working capital needs. The loan,
which bears interest at the rate of 15% per year, is secured by Common Stock
pledged by officers of the Company. As additional consideration for the loan,
10,000 Warrants were issued to Harmat at an exercise price of $0.50 per common
share. The Company has agreed that the loan will be repaid out of the proceeds
of any financing which occurs while the loan is outstanding, including the
exercise of the Warrants and/or any subsequent public or private financing.

Effective December 31, 1997, the Company sold substantially all of the
assets of the Java Centrale franchise system to Massimo Da Milano, Inc., a
Delaware corporation, for $1,000,000 in future consideration and 5,000,000
shares of Massimo's Common Stock, which has been valued at $500,000 as of
December 31, 1997. The future consideration to be received by the Company
consists of 50% cash receipts from Java Centrale royalties and a 50% credit
against products purchased from Massimo's wholesale bakery operation. Those cash
receipts and or/credits will be applied to the $1,000,000 until paid in full.

At the Company's current level of development, with its Paradise Bakery
subsidiary, it does not generate net cash from operations. To fund its
operations, the Company requires either additional financing, sales of
additional franchises, or a substantial increase in its network of Company-owned
or franchised cafes and kiosks. The Company has developed a specific operating
plan to meet the ongoing liquidity needs of the Company's operations. The
Company currently has no available credit lines.

Based on the Company's current cost structure and other expense
calculations, the Company's current and anticipated revenue streams, the
operating income expected to be produced by the Company's Paradise Bakery
system, and the anticipated exercise of the Warrants described elsewhere herein,
the Company cannot estimate that it will break even on cash flow in the current
or next fiscal year. The Company does not expect to achieve profitability until
after March 31, 1999 and then only if the Company's growth projections can be
met and its cost structure remains stable. There can be no assurance that enough
new franchises will be sold to provide the necessary liquidity, or that the
Company's liquidity goals will be reached in the immediate future, if ever. The
Company has certain debt obligations that are in default for non-compliance with
financial covenants and non-payment to the scheduled required payments. These
obligations have been classified as currently due in the financial statements
and the Company cannot make any assurances as to the ultimate disposition of
these debt obligations which total approximately $3,250,000 as of December 31,
1997. The Company's plan to provide ongoing liquidity continues to include the
active pursuit of debt and equity financing, the restructure of debt, and
developing the existing Paradise Bakery system. The Company can not make any
assurance that this plan will be successful.

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<PAGE>
BUSINESS

BUSINESS DEVELOPMENT

Java Centrale, Inc., a California corporation (the "Company"), began
operations on March 5, 1992, and operated as a development stage enterprise
through the end of its fiscal year ended March 31, 1993, and commenced principal
operations as of April 1, 1993, at which time it had operating two franchised
cafes. At December 31, 1997, the Company was operating 16 Company-owned cafes,
35 franchisee-owned cafes and had an additional three signed agreements for
as-yet-unopened franchisee-owned cafes.

ACQUISITIONS AND DISPOSITIONS

Effective December 31, 1997, the Company sold substantially all of the
assets of the Java Centrale franchise system to Massimo Da Milano, Inc. for
$1,000,000 in future consideration and 5,000,000 shares of Massimo's Common
Stock, which has been valued at $500,000 as of December 31, 1997. The future
consideration the Company will received consist of 50% cash receipts from Java
Centrale royalties and 50% credit against products purchased from Massimo's
wholesale bakery operation. Those cash receipts and or/credits will be applied
to the $1,000,000 until paid in full.

In December of 1996, the Company sold the assets of Oh La La! to Good Food
Fast Companies, Inc. "GFF" for $1,250,000 in cash, 233,333 shares of preferred
stock and $750,000 in notes receivable due in 1999. On March 31, 1997, the
Company agreed with GFF to exchange $250,000 of the convertible note receivable
for the assumption of certain liabilities of the Company, exchange 233,333
preferred shares for 233,333 shares of Common Stock, accelerate a payment of
$145,000 due under the note receivable to May 1997 and convert the remaining
$355,000 balance of the note into 40,000 shares of GFF Common Stock. The Common
Shares of GFF at March 31, 1997 have been valued at $2.00 per share based on the
fair value of such shares. The Company recognized an aggregate loss of $305,000
from the sale of Oh La La! and the subsequent conversion of the note receivable
into Common Shares.

BUSINESS OF ISSUER

Commencing with the sale of the Java Centrale franchise system on December
31, 1997, the Company's revenues are generated primarily from its Paradise
Bakery subsidiary. The Company's revenues are derived from Company-owned
facilities, initial franchise fees, franchise royalties and product overrides on
sales to its franchisees. Franchise fees range from $15,000 to $35,000 per cafe.
The Company is entitled to 4-6% of the gross receipts from each franchised cafe
and 2-10% of the gross receipts from each franchised kiosk.

Paradise Bakery has cafes at 51 locations in Hawaii, California, Arizona,
Oregon, Washington, Colorado, Oklahoma and Texas. Of these, 16 are Company-owned
and 35 are franchised. Highly visible sites in upscale markets include the
Phoenix Airport, Scottsdale Fashion Square, Ala Moana Center in Hawaii, and in
the ski resorts of Aspen and Snowmass. Both Company and Franchisee-owned cafes
seek to capture "prime" high-traffic locations such as shopping mall, airports,
and upscale recreational/tourist areas. The Paradise Bakery concept has limited
competition in the upscale bakery cafe market. The Paradise brand name is well
established and synonymous with quality baked fresh baked goods.

Freshly baked cookies, muffins and croissants have been the signature
products at Paradise Bakery cafes. Paradise Bakery also offers brownies,
cinnamon rolls and other pastry and bakery goods. Most bakery goods are made
from scratch, baked on the premises throughout the day to ensure freshness, and
are made from the highest quality ingredients. Paradise Bakery cafes also
feature freshly made specialty sandwiches, entree salads, pasta salads, and
soups. The Company is currently implementing a proprietary coffee program. The
products offered under this new banner are quality-brewed coffees and espresso
based specialty coffee beverages such as lattes, cappuccinos and espressos.
These products are an integral

25
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part of the overall positioning of the concept, as they address the customer's
desire to eat healthy food, which is served quickly.

The Paradise Bakery cafe is a twenty-one year old proven concept with
limited competition in the upscale bakery cafe market. The Company believes that
concept is now properly positioned to take advantage of the significant growth
opportunities in both traditional as well as non-traditional sites nationwide.
To exploit those opportunities the "new generation" Paradise Bakery model was
developed with the objective of expanding the current site criteria and actively
target the over 766 shopping malls with Gross Leasing Area greater than or equal
to 800,000 sq. ft. in the United States. The Company will use its existing
developer relationships and a professional food court site selection company, to
continue to select future sites. The first two new generation Paradise Bakery
cafes were developed and opened, in cooperation with an existing franchisee of
Paradise Bakery, in Littleton, Colorado, and at the Southwest Airlines terminal
in the Phoenix Airport. Other new look bakery cafes began operating in both
Arizona, California and Texas during 1997 including both new cafe openings and
remodels of existing locations. Paradise Bakery's "new generation" Paradise
Bakery cafes have a new upscale design and an improved and expanded menu. In
addition to mall locations, the cafe's new design will work well in power
centers, office buildings, airports, as well as university and college campuses.

In December 1997, the Company and Host Marriott Services (Host) signed an
exclusive master concession agreement. This five year agreement appoints Host as
the exclusive franchisee for single-operator food courts, airports and travel
plaza. Host currently operates two Paradise Bakery and Cafes in Texas and plans
to open a minimum of five new locations in regional malls in 1998. Host
currently controls approximately 70% of travel plazas and 65% of airport venues
in the United States. Host will be looking to add Paradise Bakery to these
venues in 1998 as well.

INDUSTRY OVERVIEW

Independent experts and industry surveys predict that the Bakery and Cafe
segment in which Paradise Bakery has positioned its operations will experience
some of the highest growth rates in the food service industry. This provides an
underlying growth trend to stimulate interest among consumers, franchisees,
investors, and money managers. It was reported that:

- MODERN BAKING MAGAZINE reported in its February, 1997 issue which features
Paradise Bakery on the cover, that the BAKERY/CAFE segment will experience
30% growth within a year; and, over the next several years, growth should
accelerate to explosive levels.

- THE GALLUP ORGANIZATION, in a special report prepared for the
International Dairy-Deli-Bakery Association in 1995, confirms the strong
growth in the consumption of sweet goods, such as cookies, muffins, and
danish or pastries, between 1990 and 1995. For example:

- 31% of consumers eat sweet goods for breakfast

- 16% of households eat cookies every day and 35% eat cookies one to six
times a week

- 18% of consumers eat muffins once a week or more. That represents a 20%
increase in consumption

The Company believes that the increasing popularity of the bakery/cafe
segment results from the trend of eating healthier, customers seeking fresh
products, and the general growth in the gourmet food markets. The Company also
believes the bakery/cafe segment will continue to grow and that further
consolidation of regional operators will continue.

26
<PAGE>
Paradise cafes experience great popularity because they appeal to the tastes
of today's specialty food consumers. These consumers are profiled as:

- Better educated: college educated consumers are 49% above average in
consumption, and with post-graduate education, 71% above average

- More affluent: majority earn over $35,000 a year; those over $50,000/year
are 64% above average in purchases

- High value orientation: prefer high quality and good value

- Affordable luxury: considers specialty food an affordable luxury and is
willing to spend more for better tasting food and beverage items

Segmented by eating patterns, specialty food consumers are most likely to
fall into groups called "Sophisticate" (27% above average consumption) and
"Sensible Appetites" (7% above average), as defined by the National Association
for the Specialty Food Trade (NASFT). These consumers eat out more often, and
are prone to food experimentation and specialty food purchases. Taste and health
are important to them. Dual income-no children households, with more disposal
income available, register the highest consumption at 45% above the national
average, while working-parent households are 28% above average. These groups
that characterize the "baby boom" generation are now reaching their "leisure"
years and Paradise Bakery is ideally positioned to capitalize on these trends.

COMPANY STRATEGY

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

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

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

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

27
<PAGE>
EXPANSION/ACQUISITION. The Company's strategy is to expand the Paradise
Bakery/Cafe system through new franchised and/or Company owned locations both in
the eastern and western parts of the United States.

OPERATIONS OF CAFES AND KIOSKS

Distribution of the Company's products is done exclusively through a system
of Company-operated and franchised cafes and kiosks under the Paradise Bakery
and Cafe brand name.

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

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

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

Paradise Bakery has developed a brand identity of quality over its 21 years
of existence. It uses only the finest ingredients in preparing all food
products. Freshly baked cookies, muffins and croissants have been, and will
remain, the signature products at Paradise's cafes.

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

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

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

PRICING. The Company prices its coffees, menu items and retail goods at or
above the prevailing high-end prices for these items in each of its markets. The
products offered by the Company are of the highest quality and would command a
premium price based on value alone. Additionally, the Company's research on
specialty consumers has shown that they expect to pay a higher price for
specialty food and beverage

28
<PAGE>
products and look with suspicion on products, even products of high quality,
that are priced below the market. This strategy differentiates the Company from
many of its retail competitors that are required to compete on a PRICE ONLY
basis. The Company believes that this pricing strategy assures that necessary
margins are protected and thereby allows the Company and its franchisees to
focus primarily on product quality and service to earn and retain customers.

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

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

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

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

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

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

Franchisees receive extensive training covering all aspects of cafe
operation at the training location in southern California. The training takes
place in a fully functional cafe where the franchisee receives operations
manuals and hands-on experience. Training continues with on-site assistance in
the cafe,

29
<PAGE>
including setup and planning for the grand opening. Training never ends, as the
Company always strives to deliver better products and service. Paradise Bakery &
Cafe field support representatives work with the franchisee on a regular basis
to help refine and improve their local operations.

ADVERTISING AND PROMOTION. The Company instills in each new franchisee's
mind that while quality baked goods and food is the heart and soul of the
system, marketing is the lifeblood of the business. Repetition, in fact, builds
reputation. The Company strives to teach them how to be 1% better than the
competition in 100 different ways. The goal is to increase the levels of
customer awareness and in turn the customer counts through a consistent
advertising campaign that promotes the location and the quality bakery and food
products offered by the Company. Through a cooperative effort between the
advertising department, outside advertising resources and its franchises,
Paradise Bakery & Cafe expands consumer awareness of its products, enhances
system-wide identity and increases sales.

FRANCHISE OPERATIONS

STRATEGY. The Company's growth strategy is to develop franchised cafes for
Paradise Bakery in key metropolitan areas. Based upon the Paradise Bakery's
operating history to date, the Company believes that it can continue to attract
financially and personally qualified franchisees based on the strength of its
cafe and Paradise bakery/cafe concepts.

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

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

Although franchise fees are payable to the Company upon the execution of a
single-unit Franchise Agreement or an Area Development Agreement, the Company
only recognizes such fees as revenue when all material services or conditions
relating to the sale of the franchise have been substantially performed or
satisfied by the Company. See "Note B of Notes to Financial Statements".

FRANCHISE FEES AND ROYALTIES

CAFES. Under the Company's current Franchise Agreement for cafes, each
franchisee is generally required to pay a franchise fee of $35,000. The
franchise fee is generally paid to the Company upon the execution of the
Franchise Agreement and is non-refundable. If the franchisee thereafter executes
another Franchise Agreement for an additional cafe at a different location, the
franchisee is generally required to pay a franchise fee of $15,000 for each such
additional cafe location, which franchise fee is non-refundable. If a franchisee
purchases an area pursuant to an Area Development Agreement, the franchisee must
pay

30
<PAGE>
an Area Development Fee of $5,000 for each cafe to be developed in accordance
with the Agreement's development schedule. The Area Development Fee is paid to
the Company in full upon the execution of the Area Development Agreement and is
not refundable. In addition to the Area Development Fee, the Company is entitled
to receive a Cafe Fee for each cafe location to be opened under the terms of the
Agreement. The first Cafe Fee of $20,000 is due upon execution of the Area
Development Agreement and is non-refundable. The subsequent Cafe Fees of $10,000
per location are due when leases are signed and are non-refundable.

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

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

FRANCHISEE SUPPORT SERVICES

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

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

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

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

COMPETITION

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

Paradise indirectly competes with a variety of fast service food concepts,
some of which are located in covered malls. Some competition comes from
concepts, such as, Au Bon Pain, which is a bakery/cafe concept, or
sandwich/salad concepts, such as Wall Street Deli. Other types of competitors
are strictly

31
<PAGE>
bakery products driven, such as, Cinnabon and Mrs. Fields. What sets Paradise
apart from most competitors are menu mix, positioning, and value.

Paradise Bakery & Cafe is now the second largest operator in the Bakery/Cafe
segment, behind Au Bon Pain as shown in the table that follows.

<TABLE>
<CAPTION>
# OF
RANK UNITS OPERATOR CONCEPT
- ----------- ----- ------------------------------ ------------------------------------------------------------------
<C> <C> <S> <C>
1 287 Au Bon Pain/St. Louis Bread Baked goods, breads, sandwiches, salads & soups
Co.

2 51 Paradise Bakery & Cafe Fresh baked muffins, pastries, cookies & croissants, gourmet
sandwiches, salads & soups

3 35 Vie De France Fresh baked goods, sandwiches, salads & soups

4 32 Mrs. Powell's Fresh baked goods, sandwiches, salads & soups
Bakery/Eatery

5 19 Le Croissant Shop Croissants, desserts, breads, soup and salads

6 13 Corner Bakery Baked goods, foccaccia, cookies, panini sandwiches, soups and
salads.
</TABLE>

GOVERNMENT REGULATION

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

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

Each Company-owned and franchised cafe and kiosk is subject to licensing and
regulation by a number of governmental authorities, which may include health,
sanitation, safety, fire building and other agencies in the state and
municipality in which the cafe or kiosk is located. Additionally, the food
service industry in general is subject to extensive federal, state and local
government regulations relating to the development and operation of food service
outlets, including laws and regulations relating to building and seating
requirements, the preparation and sale of food, cleanliness, safety in the work
place and accommodations for the disabled. The Company-owned and franchised
cafes which are currently operating are subject to various federal, state and
local laws and regulations, including, without limitation, the Fair Labor
Standards Act, the Americans With Disabilities Act, the Department of
Agriculture, the Food & Drug Administration, and various state agencies.
Difficulties in obtaining or failure to obtain the required licenses or
approvals could adversely affect currently operating cafes and could delay or
prevent the development of a new cafe or kiosk in a particular area or location.

32
<PAGE>
The Company is also subject to federal and state environmental regulations,
but, to date, these regulations have not had and are not expected to have in the
future, any material effect on the Company's operations. More stringent or
varied requirements of local governmental authorities with respect to zoning,
land use and environmental matters could delay or prevent the development of a
new cafe or kiosk in a particular area or location.

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

TRADEMARKS

The Company has registered the Paradise Bakery name and logos with the
United States Department of Commerce Patent and Trademark Office. The Company
currently uses a variety of other trademarks, which it expects to file
applications for registration beginning in December of 1996. These trademarks
are "Cookie Muncher's Paradise", "Paradise Bakery", "Paradise Bakery Unique
Quality", "Cookie Muncher's Paradise A Unique Bakery", "Paradise Bakery & Cafe",
and "Chip Munchers".

EMPLOYEES

As of December 31, 1997 (and taking into account the sale of its Java
Centrale Division), the Company had eight full time salaried employees and five
hourly employees at its headquarters location in Sacramento, California.
Additionally as of such date, the Company also employed 35 salaried employees
and 253 hourly employees in its operations. None of the Company's employees is
represented by a labor union and the Company considers relations with its
employees to be generally good.

DESCRIPTION OF PROPERTY

The Company leases 7,768 square feet of office space in Sacramento,
California, for its corporate headquarters. This lease expires in August of
2001.

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

The minimum aggregate rental for all these properties is $1,383,000.

LEGAL PROCEEDINGS

On March 30, 1995, the Company issued to Oh La La!, Inc.,
Debtor-in-Possession, a promissory note in principal amount of $932,342 (the
"Note"). The Note was convertible into shares of the Company's Common Stock, at
its option and under certain circumstances. In September of 1995 the Company
notified representatives of PSSS, Inc., successor in interest to Oh La La!,
Inc., that the required circumstances had been met and that it intended to
convert the note into shares of its Common Stock, and a number of shares
sufficient to convert the outstanding principal balance of the Note was
delivered to representatives of PSSS, Inc. In November of 1996, PSSS, Inc.
notified the Company that it rejected the September 1995 conversion because the
shares delivered to it were not sufficient to convert the then-outstanding
interest due on the Note, and on May 28, 1997, PSSS, Inc. sent Java a formal
demand letter for the immediate payment of the principal amount of the Note plus
$122,602.97 in accrued interest to date of such letter. In August, 1997 PSSS,
Inc. filed suit against the Company in the United States Bankruptcy Court,
Northern District of California, asserting the tender of the above stock was not
in compliance with the note agreement. The Company's management believes that
the Company has substantial defenses to this suit and, on that basis believes
that the ultimate disposition of the suit by PSSS, Inc. in this matter will not
have a material adverse effect on the Company's financial condition or operating
results.

33
<PAGE>
MANAGEMENT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of December 31, 1997, the number and
percentage of shares of the Company's outstanding Common Stock beneficially
owned, directly or indirectly, by (a) any person (or "group" as that term is
used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) who
or which is known to the Company to be the beneficial owner of more than five
percent (5%) of the Company's Common Stock, based in part on information filed
by such persons with the Securities and Exchange Commission, (b) each of the
Company's directors and the executive officers identified in the chart below,
and (c) the Company's directors and executive officers as a group. The shares
listed as "beneficially owned" are determined under Securities and Exchange
Commission rules, and do not necessarily indicate ownership for any other
purpose. In general, beneficial ownership includes shares over which the
individuals listed below have sole or shared voting or investment power and
shares, which such persons have the right to acquire within 60 days after the
date of this Prospectus. Unless otherwise indicated, the persons listed have
sole voting and investment power of the shares beneficially owned. Management is
not aware of any arrangements among those listed, which may, at a subsequent
date, result in a change of control of the Company.

<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OWNED CLASS(1)
- ------------------------------------------------------------------ -------------- ------------
<S> <C> <C>
Arron, Inc. ...................................................... 225,000(2) 9.07%
C/o Neale Bringhurst
636 Red Fox Road
Strafford, PA 19087

Michael Ambroselli ............................................... 150,000(3) 6.17%
46 Pelonic Drive
Massapequa, NY 11758

Harvey Bibicoff .................................................. 150,000(4) 6.17%
4101 Clarinda Drive
Tarzana, CA 91356

Baycor Ventures, Inc. ............................................ 187,377 7.44%
1550, 3800 Howard Hughes Avenue,
Las Vegas, NV 89109

Thomas A Craig ................................................... 18,403 *
Vice President
1610 Arden Way, Suite 145
Sacramento, CA 95819

Richard J. Crosby ................................................ -0- *
Java Centrale, Inc.
1610 Arden Way, Suite 145
Sacramento, CA 95815

Jeffrey W. Dudley ................................................ -0- *
Chief Financial Officer
1610 Arden Way, Suite 145
Sacramento, CA 95819

E. C. Capital, Ltd. .............................................. 1,000,000(5) 30.03%
300 Old Country Road, Suite 241
Mineola, New York 11501
</TABLE>

34
<PAGE>

<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OWNED CLASS(1)
- ------------------------------------------------------------------ -------------- ------------
<S> <C> <C>
Bradley B Landin ................................................. 12,500 *
Director, Vice President and Secretary
1610 Arden Way, Suite 145
Sacramento, CA 95819

Philip E. Pearce ................................................. -0- *
Java Centrale, Inc.
1610 Arden Way, Suite 145
Sacramento, CA 95815

Masada I Limited Partners ........................................ 150,000(6) 6.17%
P. O. Box 5017
Quoque, NY 11959

Mustang 65 Limited Partnership ................................... 1,250,000(7) 34.91%
2101 Corporate Boulevard
Suite 204
Boca Raton, FL 33431

Gary C. Nelson ................................................... 70,900 3.04%
Director and President
1610 Arden Way, Suite 145
Sacramento, CA 95819

Norben Import Co. Profit Sharing Plan ............................ 150,000(8) 6.17%
99 South Newman
Hackenscak, NJ 07601

Rozel International Holding Limited .............................. 450,000(9) 17.11%
Whitehill House
Newby Road Industrial Estate
Hazel Grove, Stockport
Cheshire SK7 5DA, England

All Directors and Officers as a Group ............................ 101,803 4.37%
(six persons)
</TABLE>

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

* Indicates less than one percent.

(1) Percentages reflect, on an individual basis, the assumed exercise of all
convertible securities held by each person or entity listed above, without
reference to any such exercise by others.

(2) Includes 150,000 shares, which Arron, Inc. may acquire through the exercise
of Warrants, which are exercisable within the sixty day period following
the date of this Prospectus.

(3) Includes 100,000 shares, which Mr. Ambroselli may acquire through the
exercise of Warrants, which are exercisable within the sixty day period
following the date of this Prospectus.

(4) Includes 100,000 Shares, which Mr. Bibicoff may acquire through the
exercise of Warrants, which are exercisable within the sixty day period
following December 1, 1997.

(5) Includes 1,000,000 shares, which E. C. Capital, Ltd. may acquire through
the exercise of Warrants, which are exercisable within the sixty day period
following the date of this Prospectus.

(6) Includes 100,000 Shares, which Masada I Limited Partners may acquire
through the exercise of Warrants, which are exercisable within the sixty
day period following December 1, 1997.

35
<PAGE>
(7) Includes 1,250,000 Shares which Mustang '65 Limited Partnerahip may acquire
through the exercise of Warrants which are exercisable within the sixty day
period following the date of this Prospectus.

(8) Includes 100,000 Shares, which the Norben Import Corp Profit Sharing Plan
may acquire through the exercise of Warrants, which are exercisable within
the sixty day period following December 1, 1997.

(9) Includes 300,000 Shares, which Rozel International Holding Limited may
acquire through the exercise of Warrants, which are exercisable within the
sixty day period following December 1, 1997.

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the executive
officers of the Company named below. Information about officers who are also
directors of the Company can be found above under the caption "Proposal No. 1:
Election of Directors--Nominees."

<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ------------------------------------------- --- -------------------------------------------

<S> <C> <C>
Richard J. Crosby.......................... 63 Director, Chairman of the Board

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

Bradley B. Landin.......................... 46 Director, Vice President--Operations, and
Secretary

Philip E. Pearce........................... 68 Director

Thomas A. Craig............................ 63 Vice President--Marketing and Real Estate

Jeffrey W. Dudley.......................... 40 Vice President and Chief Financial Officer
</TABLE>

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

Richard J. Crosby has been a Director and the Company's Chairman of the
Board since November 25, 1997. Previous to that time he held no offices with,
and had not been employed by, the Company. Since 1995 he been the Managing
Partner of Stoneridge Capital, Ltd., a professional services firm based in La
Costa, California which provides financial advisory and investment banking
services to public and private organizations. From 1994 to 1995, Mr. Crosby was
a Partner with Fredericks, Shields & Crosby, an investment banking firm based in
San Diego, California. From 1992 to 1994, Mr. Crosby was Senior Vice President
and Chief Financial Officer of Medtrans, Inc., a San Diego-based company which
provides emergency and non-emergency medical transportation. Medtrans, Inc. was
acquired by Laidlaw, Inc. in June of 1993. From 1990 to 1992, Mr. Crosby was a
Director, Executive Vice President, Chief Administrative Officer, and Chief
Financial Officer of CNY International, Inc., which acquired certain assets of
The House of Almonds, Morrow's Nut House, and the J. Higby's Yogurt and Treat
Shop franchise system, as well as the Morrow's Nut House catalogue business. Mr.
Crosby was the Chief Administrative Officer of American Confectionery
Corporation from 1989 to 1990, and the Executive Vice President of J. Higby's,
Inc., from 1987 to 1989. He has served on the Boards of Directors of a number of
companies, and is a California Certified Public Accountant. Mr. Crosby holds a
B.S degree in accounting from the University of California, Los Angeles, and is
a member of the California and American Societies of Certified Public

36
<PAGE>
Accountants, the American Management Association, the Financial Executives
Institute, and the Directors Round Table.

Jeffrey W. Dudley, became the Company's Vice President and Chief Financial
Officer on October 1, 1997. Prior to joining the Company, Mr. Dudley was the
Chief Financial Officer of Greenhorn Creek Associates, LP, a California limited
partnership engaged in residential real estate and golf course development, from
January to October of 1997. From July through December of 1996, Mr. Dudley acted
as an independent consultant, reporting to the Controller, for A. Teichert &
Sons, Inc., a California-based construction company, where he was responsible
for financial reporting and management of the budgeting process, among other
duties. In May and June of 1996, Mr. Dudley was a consultant for HiTec Sports
USA, Inc., a California-based distributor of outdoor footwear. From November of
1994 through April of 1996, Mr. Dudley was the Chief Financial Officer for Jason
& Son, Inc., a manufacturer and distributor of snack foods. Mr. Dudley was with
KPMG Peat Marwick from January of 1991 through November of 1994, first as an
assistant accountant and beginning in January of 1993 as a Supervising Senior
Accountant. Mr. Dudley is a member of the American Institute of Certified Public
Accountants and the California Society of Certified Public Accountants. He
received a Master of Science degree in Accountancy from California State
University, Sacramento, in 1991.

Gary C. Nelson, a founding shareholder of the Company, has been President
and Chief Executive Officer of the Company since its incorporation in March
1992. From September 1990 through October 1991 Mr. Nelson was both Senior Vice
President and President, International Division, and a founding shareholder of
CNY International, a company which was formed to acquire and operate the retail
businesses of American Confectionery Corporation. From March 1990 until August
1990, Mr. Nelson was Senior Vice President of American Confectionery
Corporation, a company which both owned and franchised over two hundred candy
and yogurt outlets. From February 1983 until February 1990, Mr. Nelson was a
founding shareholder and served as President and Chief Executive Officer of
publicly traded J. Higby's, Inc. and its privately held predecessor, Gamma
Industries, whose business was franchising J. Higby's Yogurt and Treat Shoppes
in the United States and internationally.

Bradley B. Landin, a founding shareholder, has been Vice President
Operations of the Company since its incorporation in March 1992. He served as a
member of the Board of Directors from its incorporation until his resignation in
March of 1996. In August of 1997, he was reappointed to the Board to fill a
vacancy created by the resignation of one of the then-current directors. From
September 1990 until February 1992, Mr. Landin was Vice President, International
Division, of CNY International. From March 1990 through August 1990, Mr. Landin
was Vice President, International Development, of American Confectionery
Corporation, which both owned and franchised over two hundred candy and yogurt
outlets. From September 1986 until February 1990, Mr. Landin held various
positions with publicly traded J. Higby's Inc., where he was responsible for
franchised and company-owned operations, product development, store planning and
turn-key construction and equipment programs.

Phillip E. Pearce has been Director of the Company since November 25, 1997.
Previous to that time he held no offices with, and had not been employed by, the
Company. Since 1984, Mr. Pearce has been an independent investment banker and
consultant, working through his company Phil Pearce & Associates of Charlotte,
North Carolina. Prior to that, Mr. Pearce was a Senior Vice President of E.F.
Hutton Company from 1969 to 1987, and a director of E. F. Hutton from 1969 until
1982. He was the Chairman of the Board of Governors of the National Association
of Securities Dealers, Inc. from 1968 to 1969, and a member of the Board of
Governors of the New York Stock Exchange from 1970 to 1971, and has been a
member of the Advisory Council to the United States Securities and Exchange
Commission on the Institutional Study of the Stock Markets. Mr. Pearce is also a
director of three publicly-traded corporations: Xybernaut Corporation, Starbase
Corporation, and Rx Medical Services Corporation, and has been nominated by
management for election to the Board of Directors of United Digital Network,
Inc. Mr. Pearce is a graduate of the University of South Carolina and graduated
from the Wharton School of the University of Pennsylvania.

37
<PAGE>
The term of office of each director of the Company is one year, and all of
the Directors described above were elected to the Board most recently at the
Annual Meeting of Shareholders held on November 25, 1997. The term of office of
every officer of the Company is normally one year, but every Company officer
serves at the pleasure of the Board of Directors. The Company is not aware of
any family relationships between any of the directors and executive officers of
the Company. There are no understandings or arrangements between any of the
Company's officers or Directors and any other person pursuant to which they were
or are to be elected as Directors or selected as officers of the Company.

EXECUTIVE COMPENSATION

The following table sets forth the cash compensation paid by the Company to,
as well as any other compensation paid to or earned by, the Company's Chief
Executive Officer and the three most highly compensated executive officers other
than the Chief Executive Officer during each of the fiscal years ended March 31,
1995 1996 and 1997. Directors of the Company have never been compensated
separately for their service on the Board. The Company's President and Chief
Executive Officer, Mr. Gary C. Nelson, was the only officer of the Company whose
total annual salary and bonus exceeded $100,000 during the 1995 and 1997 fiscal
years. Mr. Nelson, Steven J. Orlando, the Company's former Chief Financial
Officer, and Richard D. Shannon, the Company's former Chairman of the Board,
were the only officers of the Company whose total annual salary and bonus
exceeded $100,000 during the 1996 fiscal year. Mr. Orlando resigned from the
Company effective as of September 30, 1997, and Mr. Shannon resigned effective
as of November 25, 1997.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
------------------------
ANNUAL COMPENSATION SECURITIES
----------------------------------- RESTRICTED UNDERLYING
NAME OF INDIVIDUAL AND OTHER ANNUAL STOCK OPTIONS/ ALL OTHER
PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION AWARDS SARS(#) COMPENSATION
- -------------------------------------- ----------- --------- --------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary C. Nelson, President ............ 1997 $ 121,634 $ -0- $-0- None -0- $-0-
(Chief Executive Officer) 1996 $ 158,065 $ 35,000 $-0- None 167,000 $-0-
1995 $ 147,538 $ -0- $-0- None -0- $-0-
Steven J. Orlando .................... 1997 $ 89,900 $ -0- $-0- None -0- $-0-
Chief Financial Officer (2) 1996 $ 97,050 $ 35,000 $-0- None 175,000 $-0-
1995 $ 78,431 $ -0- $-0- None -0- $-0-
Richard Shannon ...................... 1997 $ 99,603 $ -0- $-0- None -0- $-0-
Chairman of the Board (1) 1996 $ 94,328 $ 35,000 $-0- None 174,250 $-0-
1995 $ 75,000 $ -0- $-0- None -0- $-0-
</TABLE>

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

(1) Mr. Shannon resigned from the Board, and as an officer of the Company,
effective as of November 25, 1997.

(2) Mr. Orlando resigned as an officer of the Company effective September 30,
1997.

COMPENSATION PURSUANT TO PLANS

THE JAVA CENTRALE, INC. 1993 STOCK OPTION PLAN

GENERAL INFORMATION ABOUT THE PLAN. The Board of Directors of the Company
adopted the Java Centrale, Inc. Stock Option Plan (the "Option Plan") in 1993,
and it was subsequently amended by the Company's Board of Directors and
shareholders in September of 1995. Under the terms of the Option Plan as it
currently exists, options to purchase up to 1,250,000 Common Shares may be
granted to officers, key employees and non-employee directors of the Company.
Such options, once granted, are not generally transferable.

The purpose of the Option Plan is to provide incentives to key employees and
directors of the Company to continue and increase their efforts to improve
operating results, to remain in the employ or

38
<PAGE>
service of the Company, and to have a greater financial interest in the Company
through ownership of its Common Stock.

Under the Option Plan, the Board, or a committee appointed by the Board, is
authorized to grant options which are intended to qualify as incentive stock
options under Section 422 of the Internal Revenue Code (the "Code") to employees
(including employee-directors) of the Company, and to grant options not intended
to qualify as incentive stock options ("nonstatutory stock options") to
employees and non-employee directors of the Company, and to determine the
participants, the number of options to be granted and other terms and provisions
of each option. The members of the stock option committee are: Richard Crosby,
Gary Nelson, and Jeffery Dudley. The Board has delegated to the Committee all of
its administrative functions under the Option Plan.

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

Under the terms of the Option Plan, no incentive stock option may be granted
to an optionee if the fair market value at the date of grant of shares with
respect to which such options would first become exercisable in any calendar
year, when added to the fair market value at the date of grant of any other
shares with respect to which an incentive option granted to such optionee under
the Option Plan (or any other incentive stock option plan maintained by the
Company or any of its subsidiaries) first becomes exercisable in such calendar
year, would exceed $100,000. Options granted under the Option Plan become
exercisable in whole or in part from time to time as determined by the Board or
the stock option committee; provided, however, that in no event may any option
become exercisable earlier than the date six months following the date on which
the option is granted. Options granted under the Option Plan may have a maximum
term of ten years from the date of grant. The option price must be paid in full
on the date of exercise, and is payable in cash or in Common Shares of the
Company having a fair market value on the date the option is exercised equal to
the option price.

OUTSTANDING OPTIONS UNDER THE OPTION PLAN. As of December 19, 1997, the
Company had no outstanding options to purchase shares of Common Stock pursuant
to the Plan No options issued under the Option Plan have ever been exercised.

FEDERAL INCOME TAX CONSEQUENCES. The following is a summary of the material
anticipated Federal income tax consequences associated with the granting and
exercise of options under the Option Plan to shareholders of the Company. This
summary is based on the Federal income tax laws now in effect and as currently
interpreted. It does not take into account possible changes in such laws or
interpretations, including amendments to applicable statutes, regulations, and
proposed regulations or changes in judicial or administrative rulings, some of
which may have retroactive effect. This summary is provided for general
information only and does not purport to address all aspects of the possible
Federal income tax consequences of the granting or exercise of options under the
Option Plan, and it is not intended as tax advice to any person. In particular,
and without limiting the foregoing, this summary does not consider the Federal
income tax consequences to option holders in light of their individual
investment circumstances or to holders subject to special treatment under the
Federal income tax laws. The summary does not discuss any consequence of the
granting or exercise of options under any state, local or foreign tax laws.

Options which do not qualify as incentive stock options are considered to be
"nonstatutory," and will not qualify for the special tax treatment available to
incentive stock options, as discussed below. Optionees who receive nonstatutory
stock options will not recognize any taxable income at the time the options are
granted or when they become vested; however they will normally recognize
ordinary income for federal tax

39
<PAGE>
purposes at the time an option is exercised. The amount of the income recognized
will be measured by the excess, if any, of the fair market value of the Common
Stock as of the exercise date over the exercise price.

The Code provides favorable federal income tax treatment for options which
qualify as incentive stock options. As is the case with nonstatutory stock
options, the optionee will not recognize any income at the time an incentive
stock option is granted, but in addition the optionee will generally not
recognize income for federal tax purposes when the options are exercised,
either--it is only when the underlying shares are sold that the optionee will
normally recognize such income. If a sale of the Common Stock obtained through
the exercise of an incentive stock option takes place at least two years after
the option was granted, and one year after the incentive stock option was
exercised, the difference between the exercise price and the sales price will
normally be treated as long-term capital gain (or loss) for federal income tax
purposes in the tax year in which the sale of the shares takes place. If,
however, Common Stock acquired upon exercise of an incentive stock option are
sold or otherwise disposed of less than two years after the option was granted,
or one year after it was exercised, then the sale or other disposition will be
treated as a "disqualifying disposition" for federal tax purposes, and the
optionee will generally recognize ordinary income in the tax year in which such
disposition occurs.

The Federal income tax consequences of payment of the exercise price of an
option with shares of outstanding Company stock ("Payment Shares") are identical
to those described above for payment by means of cash, except as follows. The
holding period for that number of newly issued option shares which is equal to
the number of Payment Shares being used to purchase them (the "Exchange Shares")
is the same as the holding period of the Payment Shares. In the case of an
incentive stock option, the tax basis of the Exchange shares is the tax basis of
the Exchange Shares, while the tax basis of any additional option shares being
issued in exchange for the Exchange Shares is zero. In the case of a
nonstatutory stock option, the tax basis of the Exchange Shares is the tax basis
of the Payment Shares, while the tax basis of any additional option shares being
issued is their fair market value as of the date of exercise.

TAX BENEFITS TO THE COMPANY. The Company will be entitled to a deduction
for federal tax purposes in the amount and at the time that any optionee
recognizes ordinary income with respect to the exercise of an nonstatutory stock
option, or with respect to a disqualifying disposition of shares acquired upon
exercise of an incentive stock option. The Company will not be allowed a tax
deduction in connection with exercises of incentive stock options in which there
has not been a disqualifying disposition.

OUTSTANDING OPTIONS HELD BY CERTAIN EXECUTIVE OFFICERS. As of the date of
this Prospectus there were no options outstanding under the Plan, and no such
options were held by any of the named executive officers of the Company. The
Company has never granted stock appreciation rights to its directors or
executive officers. No options were granted to any director or executive officer
of the Company during the fiscal year ended March 31, 1997, or between that date
and the date of this Prospectus.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with Richard D. Shannon,
the Company's former Chairman of the Board; Gary C. Nelson, its President and
Chief Executive Officer; Bradley B. Landin, its Senior Vice
President--Operations and Secretary; Thomas A. Craig, its Vice President--
Marketing and Real Estate; and Steven J. Orlando, its former Chief Financial
Officer and Secretary. Mr. Shannon declined to stand for re-election at the 1997
Annual Meting held on November 25, 1997, and Mr. Orlando resigned from his
positions with the Company in September of 1997; consequently neither of their
employment agreements remain in effect.

Mr. Shannon's employment agreement was originally entered into in February
of 1994, but was amended in January and again in May of 1996. As so amended, Mr.
Shannon's agreement would have run through January 31, 1999. Pursuant to his
employment agreement, Mr. Shannon acted as the Company's Chairman of the Board,
served on the Board of Directors and was entitled to receive, among other
things, (a) a base annual salary of $96,172 (subject to a potential increase to
$137,388 upon the earlier to occur of (i) one quarter of Company profitability
or (ii) significant improvement in the working capital condition of

40
<PAGE>
the Company, as approved by the Compensation Committee, (b) beginning in
February of 1997, an annual increase in base salary in an amount equal to the
amount of the then-current salary plus the greater of (i) 7% of the base salary
in effect for the previous 12 month period and (ii) the percentage increase in
the Consumer Price Index for the prior 12-month period as reported by the United
States Department of Labor (the "Department of Labor"), (c) an annual bonus, in
an amount to be determined by the Board of Directors, under such incentive
compensation plan as shall be adopted by the Board of Directors of the Company,
and (d) such options to purchase Common Stock of the Company as may be granted
pursuant to the terms of the Stock Option Plan. The employment agreement between
the Company and Mr. Shannon did not require him to spend more than 80% of his
time on Company business. Mr. Shannon declined to accept nomination to serve as
a Director of the Company, or as its Chairman of the Board, following the date
of the 1997 Annual Meeting; consequently, effective as of November 25, 1997 the
employment agreement between Mr. Shannon and the Company was terminated.

Mr. Nelson's employment agreement was originally entered into in February of
1994, but was amended in January and again in May of 1996. As so amended, Mr.
Nelson's employment agreement runs through January 31, 1999. Pursuant to his
employment agreement, Mr. Nelson will act as President and Chief Executive
Officer of the Company, will serve on the Board of Directors, and will be
entitled to receive, among other things, (a) a base salary of $116,207 (subject
to a potential increase to $166,010 upon the earlier to occur of (i) one quarter
of Company profitability or (ii) significant improvement in the working capital
condition of the Company, as approved by the Compensation Committee if certain
Company performance standards are met), (b) beginning in February of 1997, a
base salary in an amount equal to the amount of the then current base salary
plus the greater of (i) 7% of the base salary in effect for the previous 12
month period and (ii) the percentage increase in the Consumer Price Index for
the prior 12-month period as reported by the Department of Labor, (c) an annual
bonus in an amount to be determined by the Board of Directors of the Company
under such incentive compensation plan as shall be adopted by the Board of
Directors of the Company, and (d) such options to purchase Common Shares of the
Company as may be granted pursuant to the terms of the Stock Option Plan.

Mr. Landin's employment agreement was originally entered into in February of
1994, but was amended in January and May of 1996. As so amended, Mr. Landin's
employment agreement runs through January 31, 1999. Pursuant to his employment
agreement, Mr. Landin will act as Senior Vice President Operations of the
Company and will be entitled to receive among other things, (a) a base salary of
$73,274 (subject to a potential increase to $91,592 upon the earlier to occur of
(i) one quarter of Company profitability or (ii) significant improvement in the
working capital condition of the Company, as approved by the Compensation
Committee), (b) beginning in February 1997, a base salary in an amount equal to
the amount of the then current base salary plus the greater of (i) 7% of the
base salary in effect for the previous 12 month period and (ii) the percentage
increase in the Consumer Price Index for the prior 12-month period as reported
by the Department of Labor, (c) during each year thereof, an annual bonus in an
amount to be determined by the Board of Directors of the Company under such
incentive compensation plan as shall be adopted by the Board of Directors of the
Company, and (d) such options to purchase Common Shares of the Company as may be
granted pursuant to the terms of the Stock Option Plan.

Mr. Craig's employment agreement was originally entered into in February of
1994, but was amended in May of 1996. As so amended, Mr. Craig's employment
agreement runs through January 1999. Pursuant to his employment agreement, Mr.
Craig will act as Vice President--Marketing and Real Estate of the Company, and
will be entitled to receive, among other things, (a) during the first year
thereof, a base salary of $73,274 (subject to a potential increase to $91,592
upon the earlier to occur of (i) one quarter of Company profitability or (ii)
significant improvement in the working capital condition of the Company, as
approved by the Compensation Committee), (b) beginning in February 1997, a base
salary in an amount equal to the amount of the then current base salary plus the
greater of (i) 7% of the base salary in effect for the previous 12 month period
and (ii) the percentage increase in the Consumer Price Index for the prior
12-month period as reported by the Department of Labor, (c) an annual bonus in
an amount to be determined by the Board of Directors of the Company under such
incentive compensation plan as shall be

41
<PAGE>
adopted by the Board of Directors of the Company, and (d) such options to
purchase Common Stock of the Company as may be granted pursuant to the terms of
the Stock Option Plan.

Mr. Orlando's employment agreement was originally entered into in July of
1994, but was amended in January and again in May of 1996. As so amended, Mr.
Orlando's employment agreement ran through January 31, 1999. Pursuant to his
employment, he acted as Vice President--Chief Financial Officer of the Company,
and was entitled to receive, among other things, (a) during the first year
thereof, a base salary of $81,900 (subject to a potential increase to $117,000
upon the earlier to occur of (i) one quarter of Company profitability or (ii)
significant improvement in the working capital condition of the Company, as
approved by the Compensation Committee if certain Company performance standards
are met), (b) beginning in February of 1997, a base salary in an amount equal to
the amount of the then current base salary plus the greater of (i) 7% of the
base salary in effect for the previous 12 month period and (ii) the percentage
increase in the Consumer Price Index for the prior 12-month period as reported
by the Department of Labor, (c) an annual bonus in an amount to be determined by
the Board of Directors of the Company under such incentive compensation plan as
shall be adopted by the Board of Directors of the Company, and (d) such options
to purchase Common Stock of the Company as may be granted pursuant to the terms
of the Stock Option Plan. Effective September 30, 1997, Mr. Orlando formally
resigned as the Company's Vice President, Chief Financial Officer, and
Secretary, and consequently his employment agreement was terminated as of that
date. He has agreed to continue with the Company as a consultant on specific
projects, as may be requested from time to time by the Company.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Between February 1994 and November 25, 1997, when he resigned from the Board
and from all offices with the Company, Richard D. Shannon, the Company's former
Chairman of the Board and the President and Chairman of the Board of Baycor
Ventures, Inc., had an employment agreement with the Company which called upon
him to employ 50% of his time and efforts on Company business (see "Employment
Agreements," above). In fact, however, between January of 1994 and September of
1995 Mr. Shannon spent an average of 90% of his time on Company-related
business, and thereafter he continued to commit well in excess of the originally
anticipated amount of his time to the Company's affairs, with a resultant cost
to Baycor. Between October 1, 1995 and September 30, 1997 Baycor agreed from
time to time to defer receipt of certain fees and expenses owed to it by the
Company, without interest, at various times when the Company was suffering
temporary cash shortages. The maximum amount so deferred was $145,000, and as of
September 30, 1997 the amount so deferred was $122,000. In September of 1995,
the Company advanced to Baycor a loan in the amount of $185,000, at a rate of
prime plus 2%. The purpose of the loan was to induce Baycor to continue to
provide Mr. Shannon's consulting and other services to the Company at levels in
excess of those originally agreed to. This loan is due to be paid off on or
before September 30, 1998.

Lyle P. Edwards, who was a Director of the Company from October of 1996 to
August of 1997, also serves as a Vice President of Alta Petroleum, Inc., which
provided the Company a $200,000 short-term loan in April 1996. That loan was
paid off in December of 1996. During 1997, Alta Petroleum, Inc. has loaned the
Company a total of $575,000 in three separate installments, all of which are
secured by 100% of the Company's stock in its wholly owned subsidiary Paradise
Bakery, Inc. and by the assets of Paradise Bakery, Inc. as well. The purpose of
these loans was to meet the Company's short-term liquidity needs. The Alta
Petroleum, Inc. loans, which currently bear an interest rate of 16% and was due
on September 30, 1997, and the Company is in discussions with Alta Petroleum,
Inc., with respect to the timing and terms of repayment. The Company has agreed
to pay off these loans in the event that it successfully completes a financing
or asset sale in excess of $500,000. Baycor was paid a fee of $40,000 in
association with the placement of this financing.

In July of 1996, Baycor, Gary C. Nelson, the Company's President and Chief
Executive Officer, and Steven J. Orlando, its then-Chief Financial Officer,
agreed to loan the Company an aggregate of $175,000 from time to time on an
as-needed basis until April of 1997, when this line of credit would be
terminated

42
<PAGE>
and the sums then borrowed and outstanding would become due and payable. The
interest rate on the funds so advanced was prime plus 2%. The line of credit was
terminated as of March 31, 1997. In replacement, in April 1997 Mr. Nelson
advanced the Company $50,000 in exchange for a note secured by the Company's
assets, Mr. Orlando advanced the Company $31,000 in the form of deferred salary
for the period from December 1996 through March 1997, and Baycor deferred
receipt of salary and expenses accrued during the 1997 fiscal year amounting to
$145,000, without interest. In September 1997 the amounts owed to Mr. Nelson was
reduced to $35,000 and the amount owed to Mr. Orlando was reduced to $15,000, in
each case plus accrued interest at the rate of prime plus 2%. The amount owed to
Baycor as of the date of this Prospectus was $135,000, plus accrued interest
from April of 1997.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is its only outstanding class of equity
securities. The Common Stock is listed for trading on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") Small Cap List,
under the symbol "JAVC." The following table sets forth, for the calendar
quarterly periods indicated, the range of high and low sale prices for the
Common Stock as reported by NASDAQ since January 1, 1995. All the per share
prices set forth below have been adjusted to give effect to the one-for-ten
reverse stock split of the Company's Common Stock which became effective as of
December 19, 1997.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1995
First Quarter.............................................................. $ 26.25 $ 16.25
Second Quarter............................................................. $ 31.25 $ 10.00
Third Quarter.............................................................. $ 87.50 $ 25.00
Fourth Quarter............................................................. $ 54.40 $ 20.00

1996
First Quarter.............................................................. $ 32.50 $ 15.60
Second Quarter............................................................. $ 16.25 $ 7.50
Third Quarter.............................................................. $ 16.25 $ 5.00
Fourth Quarter............................................................. $ 10.00 $ 5.00

1997
First Quarter.............................................................. $ 6.88 $ 4.38
Second Quarter............................................................. $ 4.69 $ 2.50
Third Quarter.............................................................. $ 6.88 $ 3.44
Fourth Quarter............................................................. $ 6.56 $ 2.28

1998
First Quarter (through January 29, 1998)................................... $ 3.94 $ 1.88
</TABLE>

At December 31, 1997, there were 185 holders of record of the Company's
Common Stock. The Company has never paid a cash dividend on its Common Stock,
and does not anticipate paying any dividends in the immediately foreseeable
future. As a California corporation, the payment of dividends by the Company is
limited by California law and subject to the discretion of its Board of
Directors. With certain exceptions, a California corporation may not pay a
dividend to its shareholders unless its retained earnings equal at least the
amount of the proposed dividend. California law further provides that, in the
event that sufficient retained earnings are not available for the proposed
distribution, a corporation may nevertheless make a distribution to its
shareholders if it meets the following two generally stated conditions: (a) the
corporation's assets equal at least 1.25 times its liabilities, and (b) the
corporation's current assets equal at least its current liabilities, or if the
average of the corporation's earnings before taxes on income and before interest
expense for the two preceding fiscal years was less than the average of the
corporation's interest expense for such fiscal years, then the corporation's
current assets must equal at least 1.25 times its current liabilities

43
<PAGE>
SELLING SHAREHOLDERS

The shares of Common Stock registered hereunder are being offered for the
accounts of the individuals and entities listed below (the "Selling
Shareholders"). None of the Selling Shareholders has any position with, the
Company or any of its predecessors or affiliates, or has had any such position
within the past three years.

<TABLE>
<CAPTION>
SHARES
WHICH MAY SHARES TO BE OWNED AFTER
BE OBTAINED
SHARES UPON SHARES OFFERING(1)
CURRENTLY EXERCISE OF OFFERED --------------------------
SELLING SHAREHOLDER OWNED THE WARRANTS HEREBY NUMBER PERCNT
- ---------------------------------------------------- ------------- ------------ ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Michael Ambroselli.................................. 50,000 100,000 150,000 -0- -0-
Arron, Inc.......................................... 75,000 150,000 225,000 -0- -0-
Harvey Bibicoff..................................... 50,000 100,000 150,000 -0- -0-
Centre Trustees, CI Limited......................... 12,500 25,000 37,500 -0- -0-
Malcom and Julia Coster............................. 12,500 25,000 37,500 -0- -0-
E. C. Capital, Ltd.................................. -0- 1,000,000 1,000,000 -0- -0-
Howard J. Green..................................... 12,500 25,000 37,500 -0- -0-
The Harmat Organization............................. -0- 10,000 10,000 -0- -0-
Legong Investments, N.V............................. -0- 45,000 45,000 -0- -0-
Nancy J. Litman..................................... 25,000 50,000 75,000 -0- -0-
Masada I Limited Partners........................... 50,000 100,000 150,000 -0- -0-
Mustang '65 Limited Partners........................ -0- 1,250,000 1,250,000 -0- -0-
Norben Import Corp. Profit Sharing Plan............. 50,000 100,000 150,000 -0- -0-
Riviera Holding LLC................................. 37,500 75,000 112,500 -0- -0-
Amy Robinson........................................ 25,000 50,000 75,000 -0- -0-
Rozel International Holding Limited................. 150,000 300,000 450,000 -0- -0-
Dennis Saleeby...................................... 25,000 50,000 75,000 -0- -0-
Stit Consulting Limited............................. 25,000 50,000 75,000 -0- -0-
Sunset Capital, Inc................................. 25,000 50,000 75,000 -0- -0-
TOTALS............................................ 625,000 3,555,000 4,180,000 -0- -0-
</TABLE>

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

(1) Assumes all Warrants will be exercised and all Shares offered hereby will be
sold.

ORIGIN OF THE SHARES OFFERED

In August of 1997, the Company retained E.C. Capital Ltd. ("ECC"), a New
York based investment-banking firm, to raise equity capital in a private
offering (the "ECC Offering"). The Company issued to investors Units consisting
of 25,000 shares of Common Stock, 25,000 "A" and "B" Warrants. The "A" Warrants
have a term of two years from the date of issuance and may be exercised to
purchase shares of Common Stock at a per share exercise price of $1.60. The "B"
Warrants have a three-year term and may be exercised to purchase shares of
Common Stock at a price per share of $2.00. The offering price for each full
unit of the ECC Offering was $25,000. All the Units so offered were sold during
September and October of 1997, including a total of 625,000 Common Shares and
Warrants for the purchase of an additional 1,250,000 Common Shares, for net
proceeds of $544,000. The issuance of the "A" and "B" Warrants were subject to
approval by the Company's Board of Directors and shareholders of (i) an
amendment to the Company's Articles of Incorporation increasing its authorized
number of shares of Common Stock from 25,000,000 to 50,000,000, (ii) effecting a
one for ten reverse stock split of the outstanding shares of Common Stock, and
(iii) moving the Company's state of incorporation from California to Delaware.
All of the above proposals were approved by the Company's shareholders at its
annual meeting held November 25, 1997. The Company has agreed to pay ECC a 10%
commission on all sales of Units and a 3% non-accountable expense reimbursement.
Additionally, the Company has issued to

44
<PAGE>
ECC 500,000 "A" and 500,000 "B" Warrants, as partial compensation for its
efforts in completing the ECC Offering, for a total of 1,000,000 Warrants in
all. The Company has also agreed to retain ECC as an advisor for the next three
years at a fee of $3,000 per month and to pay ECC a 5% warrant solicitation fee
for any of the investor Warrants which are exercised. The Company has also
agreed not to raise debt or equity financing during this three-year period other
than with consent of ECC and to allow a ECC designee to observe all meetings of
the Company's Board of Directors. Further, all of the Company's officers and
directors have executed lock-up agreements with ECC whereby they have agreed not
to transfer, assign, sell or otherwise dispose of any of their Company shares,
except with the consent of ECC, until at least one year after the effective date
of the registration statement.

The Shares offered herein include 625,000 currently outstanding shares and
up to 1,250,000 Shares, which may be obtained by the exercise of certain Common
Stock Purchase Warrants which, are held by the investors of the ECC Offering.
Those investors are referred to herein as the Selling Current Shareholders. An
additional 2,305,000 Shares are being offered by certain of the Company's other
Warrant holders who were not investors in the ECC Offering. Those Shares are not
currently outstanding, but may be obtained by the holders of such Warrants upon
exercise of such Warrants in accordance with their terms.

All of the Selling Current Shareholders, who or which obtained their Shares
and Warrants pursuant to the private offering of Units described above, are
subject, under the terms of that offering, to restrictions on their ability to
sell the Shares listed in the chart above, including the Shares which they are
entitled to obtain upon exercise of the Warrants. Specifically, for a period of
one year after the date on which they obtained their Units the Selling Current
Shareholders may not publicly sell either the Shares they acquired directly as
part of the Units or the Shares they are entitled to obtain upon the exercise of
their Warrants, without the prior written approval of E. C. Capital, Ltd., the
Placement Agent for that Units offering. The restricted period applicable to
those Shares will expire, as to all of the Shares and Warrants held by the
Selling Current Shareholders, in September or October of 1998.

DESCRIPTION OF THE COMMON STOCK

The Company is authorized to issue up to 50,000,000 shares of no par value
Common Stock, and 25,000,000 shares of preferred stock. As of January 16, 1998,
2,330,504 shares of the Company's Common Stock were issued and outstanding, and
no shares of the preferred stock, were issued and outstanding. The Company's
Common Stock has been registered, as a class, under Section 12 of the Exchange
Act.

Subject to preferential rights of the holders of preferred stock and senior
debt securities (if any) and the applicable provisions of the California General
Corporation Law, the holders of the Company's Common Stock will be entitled, on
liquidation, dissolution, or winding up of the Company, to receive pro rata its
net assets remaining after the payment of all creditors.

The holders of the Common Stock are entitled to one vote for each share on
all matters submitted to a vote of the shareholders. In any election of
directors each shareholder has the right to cumulate votes. Shareholders have no
preemptive rights or other rights to subscribe for additional shares. There are
no conversion rights, redemption rights, or sinking fund provisions with respect
to shares of the Common Stock. The outstanding shares of Common Stock are
fully-paid and nonassessable.

LIMITATIONS ON DIVIDENDS

Under California law, shareholders of the Company may receive dividends when
and as declared by its Board of Directors out of funds legally available. With
certain exceptions, a California corporation may not pay a dividend to its
shareholders unless its retained earnings equal at least the amount of the
proposed dividend. California law further provides that, in the event that
sufficient retained earnings are not available for the proposed distribution, a
corporation may nevertheless make a distribution to its shareholders if it meets
the following two generally stated conditions: (i) the corporation's assets
equal at least 1 1/4 times its liabilities, and (ii) the corporation's current
assets equal at least its current liabilities or, if the

45
<PAGE>
average of the corporation's earnings before taxes on income and before interest
expense for the two preceding fiscal years was less than the average of the
corporation's interest expense for such fiscal years, then the corporation's
current assets must equal at least 1 1/4 times its current liabilities.

DESCRIPTION OF THE WARRANTS

This Prospectus, and the Registration Statement of which it forms a part,
refer only to the Shares of Common Stock being offered by the Selling
Shareholders, and not to any of the Warrants themselves. Each of the Warrants
described herein is subject to restrictions on transferability, as described
below, and this Prospectus may not be relied upon in connection with any resale
or other transfer of a Warrant.

All questions about the exercise and terms of the Warrants and the rights of
the Warrant Holders will be decided by the Company's Board of Directors. For a
full description of the Warrants, please refer to the forms of Warrants
themselves, copies of which have been provided to each of the Selling
Shareholders and will be provided as appropriate to persons entitled thereto
upon request, free of charge. The descriptions of the Warrants contained in this
Prospectus are qualified in their entirety by reference to the complete text of
such documents. Any conflict between the summary provided in this Prospectus and
the actual terms of such documents must be resolved in favor of the terms as
expressed in the documents themselves.

Each of the Warrants provides for the issuance, upon exercise and payment of
the exercise price, as described below, of that number of shares of the
Company's Common Stock which is specified therein; however both the number of
Shares which may be obtained upon exercise of the Warrants and the exercise
price for the Warrants are subject to adjustment in certain circumstances, as
more fully described below.

TERMS OF THE WARRANTS

WARRANTS HELD BY THE SELLING CURRENT SHAREHOLDERS AND ECC

All of the Warrants held by the Selling Current Shareholders and by E. C.
Capital, Ltd. consist of two separate but substantially similar types: Class A
and Class B Warrants. These Warrants are identical in all respects except for
their respective terms and exercise prices, as described below.

TERM. The term of the A Warrants runs through November 29, 1999; the term
of the B Warrants runs through November 29, 2000 (the date of termination of the
Warrants is in each case referred to herein as the "Expiration Time"). Following
the expiration Time for any given Warrant, the holder(s) thereof will have no
further right to subscribe for or purchase any security of or issued by the
Company; and the Warrants and all rights thereunder will be valueless,
unexercisable, and void.

EXERCISE PRICE. The exercise price of the A Warrants is $1.60 per share of
Common Stock; for the B Warrants the exercise price is $2.00 per share. In both
cases the exercise price is subject to adjustment as described in the following
sentence. If, prior to the Expiration Time, the outstanding shares of the
Company's Common Stock shall be increased or decreased through a stock split,
stock dividend, reverse stock split, stock consolidation, or otherwise, without
consideration to the Company (including without limitation the reverse stock
split described in Section 9, below), an appropriate and proportionate
adjustment shall be made in the number and kind of shares as to which the
Warrants may be exercised. The effect of such adjustment shall be that the
Purchaser shall obtain upon exercise of the Warrants after such event the same
number of Warrant Shares for the same aggregate consideration as had Purchaser
exercised the Warrants in full prior to such event and had the Warrant Shares
then been subjected to the effects of such event.

MANNER OF EXERCISE. The holder of any Class A or Class B Warrant may
exercise it to purchase all or any whole number of the Shares it covers by (a)
providing the Company with a signed written notice of its intent to exercise the
Warrant Certificate, specifying the number of Warrant Shares to be so purchased
completing in the manner indicated; (b) surrendering its current Warrant to the
Company at the

46
<PAGE>
Company's principal place of business in Sacramento, California; and (c) paying
the appropriate purchase price for the Shares, by cash, money order, bank draft,
or certified check, payable to the Company at its principal place of business in
Sacramento, California.

RIGHTS AS A SHAREHOLDER, EMPLOYEE, OR CONSULTANT. No person who holds a
Class A or Class B Warrant will have any rights as a Company shareholder with
respect to the Shares represented thereby until such Warrant is exercised and
the Shares are actually issued. The grant or possession of a Class A or Class B
Warrant does not impose any obligation whatsoever on the Company to employ or
continue to employ the recipient of the Warrant, and does not interfere with the
Company's right to terminate any position he or she may have with the Company,
as a consultant or otherwise, at any time.

TRANSFER OF THE WARRANTS. Except as described below, the Warrants may not
be transferred without the express written consent of the Company, which consent
may be granted or withheld for any reason in the Company's sole and absolute
discretion. Unless the Company has previously granted its written consent
thereto, the Warrant may be exercised only by the authorized holder of the
Warrant, or by his, her, or its permitted transferees, as described below. More
particularly, the Warrants may not be sold, assigned, transferred (except as
provided above), pledged, hypothecated, or otherwise conveyed, encumbered, or
disposed of in any way, are not normally assignable by operation of law, and are
generally not subject to execution, attachment, or similar process. Any
attempted sale, assignment, transfer, pledge, hypothecation, conveyance,
encumbrance, or other disposition of the Warrants or the Warrant Certificate
contrary to the provisions of the Warrants, and the levy of any execution,
attachment, or similar process thereupon would generally be void and without
effect, and the Company had no obligation to recognize any such purported
transaction or event or to reflect such a purported transaction or event on its
official records or to issue Warrants or shares of its Common Stock to any
party. If the authorized holder of a Warrant is an individual, however, the
Company will normally consent to the transfer of the Warrant to his or her
heirs, executors, personal representatives, or administrators upon the death of
the Warrant holder. If the authorized holder is an entity (such as a corporation
or a Trust), the Company will consent to the transfer of the Warrant to the
owners of the entity upon its formal dissolution.

REDEMPTION RIGHTS. The Class A and Class B Warrants do not provide the
Company with any redemption rights with respect to either the Warrants
themselves or the underlying shares of Common Stock.

WARRANTS HELD BY THE OTHER WARRANT HOLDERS

The terms of the 1,305,000 Warrants held by the Other Warrant Holders are
substantially similar to those of the Class A and Class B Warrants described
above, except that the exercise prices of such Warrants vary from between Fifty
Cents ($0.50) to One Dollar and Eighty Cents ($1.80) per share and they all
expire at various times during the year 2000. The Warrants held by Legong
Investments, N. V. also have a redemption feature, which would allow the Company
to redeem them for Fifty Cents ($0.50) each should the Company's Common Stock
achieve a trading price of Twenty Dollars per share.

PLAN OF DISTRIBUTION

The Company will not receive any of the proceeds from the sale of the Shares
by the Selling Shareholders. The Shares may be offered from time to time by or
for the account of the Selling Shareholders through dealers, brokers or other
agents, or directly to one or more purchasers, at market prices prevailing at
the time of sale or prices otherwise negotiated.

The Registration Statement covering the Shares offered hereby will be
maintained in effect, and the Shares may be sold thereunder by the Selling
Shareholders, until January 31, 2000 (the "Offering Period"). At the end of the
Offering Period, Shares not sold by the Selling Shareholders during the Offering
Period

47
<PAGE>
will return to the status of restricted stock which may be sold pursuant to the
provisions of Rule 144 under the Securities Act of 1933 (the "Act").

The Selling Shareholders may elect to sell the Shares, directly or through
brokers or dealers, from time to time during the Offering Period. Such sales may
be made at the market price in one or more transactions on the NASD Automated
Quotation System, SmallCap Market, on any other local or national exchange or
quotation system on which the Company's Common Stock may then be listed; or at
privately negotiated prices in negotiated transactions; or otherwise at prices
and terms prevailing at the time of sale.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Company's Articles of Incorporation and bylaws provide for
indemnification of directors and officers to the full extent permitted or
authorized under California Law, for expenses, liabilities and losses actually
and reasonably incurred as a result of any such director's or officer's status
as such, provided that the indemnitee acted in good faith and in a manner he or
she believed to be in or not to be opposed to the best interest of the
corporation. In addition, the Company has entered into an Indemnification
Agreement with each of its directors and executive officers, which agreement
provides, among other things, for contractual rights of the indemnitee to
advancement of expenses prior to final disposition of an action provided that,
if required by California law, the indemnitee agrees to repay such advance upon
the Company's request if it is ultimately determined that the indemnitee is not
entitled to indemnification.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.

LEGAL MATTERS

The validity of the Common Stock offered hereby and certain other matters
will be passed upon for the Company and the Selling Shareholders by Rosenblum,
Parish & Isaacs, PC, San Francisco, California.

EXPERTS

The audited consolidated financial statements incorporated by reference in
this Prospectus and elsewhere in this Registration Statement have been audited
by Grant Thornton LLP, independent certified public accountants, as indicated in
their reports with respect thereto; and are included therein and incorporated
herein by reference in reliance upon the authority of such firm as experts in
providing such reports.

No person has been authorized in connection with this offering to give any
information, or to make any representation not contained in this Prospectus, and
if given or made, such information or representation must not be relied upon as
having been authorized by the Company. This Prospectus does not constitute an
offer of any securities other than those to which it relates or an offer to any
person in any jurisdiction where such an offer would be unlawful, or in which
the person making such offer or solicitation is not qualified to do so. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that the information herein is correct as
of any time subsequent to its date.

48
<PAGE>
CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT....................... F-2

CONSOLIDATED FINANCIAL STATEMENTS.......................................

CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1997 AND 1996............... F-3

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31,
1997, 1996 AND 1995................................................... F-4

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) AS OF MARCH 31,
1997, 1996 AND 1995................................................... F-5

F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, to
1997, 1996 AND 1995................................................... F-7

F-8
to
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............................. F-21

INTERIM FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED FINANCIAL STATEMENTS.......................................

CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1997 AND MARCH 31,
1996.................................................................. F-22

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND SIX
MONTHS ENDED SEPTEMBER 30, 1997 AND 1996.............................. F-23

F-24
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED SEPTEMBER to
30, 1997 AND 1996..................................................... F-25

F-26
-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............................. F-27
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders

JAVA CENTRALE, INC. AND SUBSIDIARY

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

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Java Centrale,
Inc. and Subsidiary as of March 31, 1997 and 1996, and the consolidated results
of their operations and their consolidated cash flows for the years ended March
31, 1997, 1996 and 1995 in conformity with generally accepted accounting
principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note C to the
financial statements, the Company has experienced recurring net losses from
operations and has a net loss of approximately $5,300,000 for the year ended
March 31, 1997 and as of that date, the Company's current liabilities exceeded
it current assets by approximately $2,900,000. At March 31, 1997, the Company is
in default under a note agreement and is not in compliance with certain debt
agreement covenants which could result in the notes becoming due and payable on
demand. The Company's plan in regard to these matters are also described in Note
C. The accompanying financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the
amounts and classifications of liabilities should the Company be unable to
continue as a going concern.

GRANT THORNTON LLP

Sacramento, California
July 8, 1997

F-2
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

MARCH 31,

ASSETS

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

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

LIABILITIES AND STOCKHOLDERS' EQUITY

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

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

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

The accompanying notes are an integral part of these statements.

F-3
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

YEAR ENDED MARCH 31,

<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Revenue:
Company cafe sales................................................. $ 12,813,423 $ 7,585,190 $ 476,859
Franchise operations............................................... 538,629 394,788 398,000
Royalties.......................................................... 1,335,616 524,635 198,413
Sales of equipment and supplies.................................... 121,220 1,050,187 702,398
------------- ------------- -------------
Total revenue.................................................... 14,808,888 9,554,800 1,775,670

Cost of company sales:
Food and beverage.................................................. 4,451,072 2,597,238 222,857
Labor.............................................................. 4,643,875 2,714,067 265,075
Direct and occupancy............................................... 2,705,026 1,742,044 72,999
Cost of equipment and supplies..................................... 148,857 1,038,497 774,984
Depreciation....................................................... 573,495 227,631 34,865
Other.............................................................. 144,637 222,000 45,256
------------- ------------- -------------
Total cost of company sales...................................... 12,666,962 8,541,477 1,416,036
------------- ------------- -------------
General and administrative expenses.................................. 4,602,667 4,187,049 2,351,025
Depreciation and amortization........................................ 584,873 380,159 43,746
Loss associated with cart and cafe closures.......................... 413,043 410,200 --
Bad debt expense..................................................... 472,011 74,000 --
Settlement expense................................................... 336,000 -- --
Loss on conversion of note receivable................................ 275,000
Loss on joint venture................................................ 256,816 -- --
Loss on sale of cafes................................................ 127,921 -- --
------------- ------------- -------------
Operating loss................................................... (4,926,405) (4,038,085) (2,035,137)
------------- ------------- -------------
Other income (expense):
Interest expense................................................... (662,084) (117,284) (7,247)
Interest income.................................................... 113,168 98,295 216,842
Debt conversion expense............................................ -- -- (118,953)
Other income....................................................... 149,129 90,648 50,312
------------- ------------- -------------
Net loss......................................................... $ (5,326,192) $ (3,966,426) $ (1,894,183)
------------- ------------- -------------
------------- ------------- -------------
Net loss per weighted average equivalent common share outstanding.... $ (.46) $ (.61) $ (.42)
------------- ------------- -------------
------------- ------------- -------------
Equivalent common shares outstanding................................. 11,540,800 6,526,377 4,488,532
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

THREE YEARS ENDED MARCH 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------------- ------------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT (DEFICIT) TOTAL
---------- ----------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances, March 31, 1994.................. 5,000,000 $ 1,000,000 3,016,820 $ 600,000 $ (2,251,621) $ (651,621)
Initial public offering of common stock,
net of expenses......................... -- -- 1,500,000 7,288,407 -- 7,288,407
Conversion of Series B preferred stock to
common stock............................ (5,000,000) (1,000,000) 200,000 1,000,000 -- --
Debt conversion expense................... -- -- -- 118,953 -- 118,953
Shares issued for acquisition............. -- -- 600,000 569,500 -- 569,500
Net loss.................................. -- -- -- -- (1,894,183) (1,894,183)
---------- ----------- ----------- ------------ ------------- -----------
Balances, March 31, 1995.................. -- -- 5,316,820 9,576,860 (4,145,804) 5,431,056
Shares issued for cafe purchases.......... -- -- 279,721 466,168 -- 466,168
Warrants converted to common stock........ -- -- 300,000 120,000 -- 120,000
Note payable converted to
common stock............................ -- -- 234,000 748,800 -- 748,800
Shares issued for acquisitions............ -- -- 505,926 467,477 -- 467,477
Shares issued for private offerings, net
of expenses............................. -- -- 1,604,692 3,540,722 -- 3,540,722
Shares issued for joint venture
investment.............................. -- -- 89,428 120,166 -- 120,166
Shares issued for consulting expenses..... -- -- 203,000 452,944 -- 452,944
Net loss.................................. -- -- -- -- (3,966,426) (3,966,426)
---------- ----------- ----------- ------------ ------------- -----------
Balances, March 31, 1996.................. -- -- 8,533,587 15,493,137 (8,112,230) 7,380,907
Conversion of convertible notes........... -- -- 3,311,183 1,850,552 -- 1,850,552
Shares issued for private offerings, net
of expenses............................. -- -- 1,538,462 900,000 -- 900,000
Warrants converted to common stock........ -- -- 250,000 62,500 -- 62,500
Shares issued for consulting expenses..... -- -- 200,000 50,000 -- 50,000
Warrants issued for consulting
expenses................................ -- -- -- 240,351 -- 240,351
Warrants issued in connection with
debt.................................... -- -- -- 31,500 -- 31,500
Shares canceled for joint venture
investment.............................. -- -- (89,428) (120,166) -- (120,166)
Net loss.................................. -- -- -- -- (5,326,192) (5,326,192)
---------- ----------- ----------- ------------ ------------- -----------
Balances, March 31, 1997.................. -- $ -- 13,743,804 $ 18,507,874 $ (13,438,422) $ 5,069,452
---------- ----------- ----------- ------------ ------------- -----------
---------- ----------- ----------- ------------ ------------- -----------
</TABLE>

The accompanying notes are an integral part of this statement.

F-5
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................... $ (5,326,192) $ (3,966,426) $ (1,894,183)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization.................................... 1,158,368 607,790 78,293
Loss on conversion of note receivable............................ 275,000 -- --
Loss on joint venture............................................ 256,816 -- --
Settlement expense............................................... 150,000 -- --
Loss on sale of cafes............................................ 127,921 -- --
Debt conversion expense.......................................... -- -- 118,953
Loss associated with cart and cafe closures...................... 413,043 410,200 --
Stock issued for consulting expenses............................. 188,497 452,944 --
Warrants issued in connection with debt.......................... 31,500 -- --
Changes in operating assets and liabilities:
Inventories.................................................... (44,063) (20,410) (61,722)
Deposits and prepaid expenses.................................. 125,442 (318,478) (217,457)
Accounts payable and accrued liabilities....................... (924,075) 512,923 288,704
Payable to related parties..................................... 16,093 (221,668) (8,492)
Deferred revenue............................................... (417,500) 314,500 18,000
Accounts receivable............................................ (276,948) 21,768 (111,283)
Notes receivable............................................... 962,237 200,718 (228,776)
Deferred charges and other assets.............................. 248,555 (523,570) 143,936
Other liabilities.............................................. (26,973) 138,376 --
------------- ------------- -------------
Net cash used in operating activities........................ (3,062,279) (2,391,333) (1,874,027)
Cash flows from investing activities:
Proceeds from cafe sales........................................... 1,321,100 -- --
Purchase of furniture and equipment................................ (313,446) (1,432,166) (333,074)
Increase in intangible assets...................................... (15,001) (2,225) --
Investment in joint venture........................................ -- (13,404) --
Cash paid for net assets acquired and other acquisition expenses... -- (5,554,427) (676,170)
------------- ------------- -------------
Net cash provided by (used in) investing activities.......... 992,653 (7,002,222) (1,009,244)
Cash flows from financing activities:
Proceeds from issuing convertible debt............................. -- 3,500,000 --
Proceeds from issuing common stock, net............................ 900,000 3,540,722 7,288,407
Proceeds from notes payable........................................ 1,729,000 -- --
Repayments of notes payable........................................ (1,361,695) (494,206) (678,000)
(Payments) proceeds from capital lease obligations................. (91,649) 144,839 --
Proceeds from warrant conversions.................................. 62,500 120,000 --
------------- ------------- -------------
Net cash provided by financing activities.................... 1,238,156 6,811,355 6,610,407
------------- ------------- -------------
Net (decrease) increase in cash...................................... (831,470) (2,582,200) 3,727,136
Cash and cash equivalents, beginning of period....................... 1,182,078 3,764,278 37,142
------------- ------------- -------------
Cash and cash equivalents, end of period............................. $ 350,608 $ 1,182,078 $ 3,764,278
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

F-6
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Cash paid for:
Income taxes................................................................... $ 1,600 $ -- $ --
Interest....................................................................... $ 438,707 $ 55,006 $ 7,247
</TABLE>

NON-CASH TRANSACTIONS:

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

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

SUPPLEMENTAL NON-CASH INVESTING ACTIVITIES:

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

<TABLE>
<S> <C>
Fixed assets, net............................................... 1,220,063
Accounts receivable............................................. 41,252
Inventory....................................................... 59,785
---------
Net cash proceeds............................................... $1,321,000
---------
---------
</TABLE>

The accompanying notes are an integral part of these statements.

F-7
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1997, 1996 AND 1995

NOTE A--ORGANIZATION AND NATURE OF BUSINESS

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

NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

1. PRINCIPLES OF CONSOLIDATION

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

2. REVENUE FROM FRANCHISE SALES

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

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

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

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

3. INVENTORIES

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

4. PROPERTY AND EQUIPMENT

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

F-8
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997, 1996 AND 1995

NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The estimated lives used in determining depreciation and amortization are:

<TABLE>
<S> <C> <C>
Tenant improvements.......................................... 6.5-10 years
Machinery and equipment...................................... 6-10 years
Furniture and fixtures....................................... 3-10 years
</TABLE>

5. INTANGIBLE ASSETS

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

<TABLE>
<S> <C>
Goodwill.......................................................... 15 years
Organizational costs.............................................. 5 years
</TABLE>

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

6. INCOME TAXES

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

7. CASH AND CASH EQUIVALENTS

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

8. RECLASSIFICATIONS

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

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

F-9
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997, 1996 AND 1995

NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
$1,850,700 based upon current market rates for notes with similar terms and
credit quality. As of March 31, 1996, notes receivable with a carrying value of
$2,019,526 had an estimated fair value of $1,897,000 based upon current market
rates for notes with similar terms and credit quality.

10. ESTIMATES USED IN FINANCIAL REPORTING

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

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

11. STOCK-BASED COMPENSATION

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

12. LOSS PER SHARE

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

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

13. ADVERTISING

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

14. FUTURE EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share (SFAS No. 128).
SFAS No. 128 replaces the presentation of primary earnings per share (EPS) with
a presentation of basic EPS. It also requires dual presentation of

F-10
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997, 1996 AND 1995

NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
basic and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Provisions of SFAS No. 128 are effective for periods
ending after December 15, 1997. The potential impact of adopting SFAS No. 128 is
expected to be immaterial.

NOTE C--REALIZATION OF ASSETS

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

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

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

NOTE D--FRANCHISE OPERATIONS

At March 31, 1997, the Company has commitments from franchisees for 37
franchisee owned cafes and carts which are not yet operational. Under these
commitments, the Company has received $520,000 in nonrefundable deposits, and
notes receivable of $80,000. No revenues have been recognized in the financial
statements related to the cafes and carts not yet operational. The notes
receivable do not bear interest, and are due within twenty-four months of the
note date.

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

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

F-11
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997, 1996 AND 1995

NOTE E--SIGNIFICANT ACQUISITIONS

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

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

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

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

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

NOTE F--DISPOSAL OF ASSETS

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

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

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

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

F-12
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997, 1996 AND 1995

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

NOTE G--PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Office furniture and equipment.................................... $ 384,460 $ 361,873
Tenant improvements............................................... 2,044,554 3,196,634
Cafe equipment.................................................... 1,243,470 2,798,701
------------ ------------
3,672,484 6,357,208
Less accumulated depreciation and amortization.................... (891,326) (619,228)
------------ ------------
$ 2,781,158 $ 5,737,980
------------ ------------
------------ ------------
</TABLE>

NOTE H--NOTES RECEIVABLE

Notes receivable at March 31, consist of the following:

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

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

F-13
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997, 1996 AND 1995

NOTE I--INTANGIBLE ASSETS

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

<TABLE>
<CAPTION>
ACCUMULATED
COST AMORTIZATION NET
------------ ------------ ------------
<S> <C> <C> <C>
Goodwill............................................ $ 4,408,195 $ 367,350 $ 4,040,845
Organizational cost................................. 31,123 31,123 --
------------ ------------ ------------
Total............................................... $ 4,439,318 $ 398,473 $ 4,040,845
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

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

<TABLE>
<CAPTION>
ACCUMULATED
COST AMORTIZATION NET
------------ ------------ ------------
<S> <C> <C> <C>
Goodwill............................................ $ 5,575,006 $ 143,338 $ 5,431,668
Organizational cost................................. 35,658 31,123 4,535
License rights...................................... 100,000 10,000 90,000
------------ ------------ ------------
Total............................................... $ 5,710,664 $ 184,461 $ 5,526,203
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

NOTE J--INVESTMENT

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

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

F-14
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997, 1996 AND 1995

NOTE K--ACCRUED LIABILITIES

Accrued liabilities at March 31, consist of the following:

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

F-15
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1997, 1996 AND 1995

NOTE L--RELATED PARTIES

Baycor Venture, Inc. (Baycor) is a wholly owned subsidiary of Baycor Capital
Inc., of Alberta, Canada which owns several other Canadian corporations. A
principal shareholder of Baycor Capital, Inc. is Chairman of the Board of the
Company. The individual was paid $75,000, $94,328 and $99,603 under the terms of
an employment agreement during the years ended March 31, 1995, 1996 and 1997,
respectively. The Company also reimburses Baycor for travel and entertainment
expenses incurred by officers of Baycor on behalf of the Company. At March 31,
1997 and 1996, the Company owed Baycor $44,275 and $22,637, respectively, for
expense reimbursement and compensation.

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

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

F-16
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997, 1996 AND 1995

NOTE M--LONG-TERM DEBT

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Long-term debt at March 31, consists of the following:
Note payable to Chart House Enterprises, Inc. The note bears interest at ten percent
per annum and is payable interest only for the first twelve months beginning
February 1, 1996, and thereafter principal payments shall be payable in eight equal
quarterly payments in amounts sufficient to fully amortize the entire principal
balance over a period of eight quarters. The note is collateralized by franchisee
note receivables. The Company was in default as of March 31, 1997. $ 836,282 $ 965,000
Note payable to Chart House Enterprises, Inc., due April 30, 1997. The note bears
interest at ten percent per annum and is payable quarterly in arrears. The note is
collateralized by certain Company owned stores. -- 385,000
Loan payable to Sanwa Bank, due March 31, 1996. The loan bears interest at 9.3125% and
is collateralized by certain Company owned stores. -- 350,000
Tenant improvement loans with terms calling for monthly principal and interest
payments over a period ranging from one to ten years with interest rates ranging
from 7.5 to 11 percent. 88,836 217,946
Note payable to Alta Petroleum, related party, due May 31, 1997. The note bears
interest at 14% and is collateralized by all Paradise Bakery, Inc. shares. This
balance is outstanding as of July 8, 1997. 300,000 --
Loan payable to Imperial Business Credit, Inc. The note bears interest at 12.551% per
annum. Payments of $20,304 are due monthly. The loan is collateralized by all
equipment, receivables and inventory of the Paradise Company owned stores. The loan
is subject to certain requirements and covenants of which the Company is not in
compliance. 720,370 --
------------ ------------
1,945,488 1,917,946
Less current maturity 1,945,488 746,785
------------ ------------
$ -- $ 1,171,161
------------ ------------
------------ ------------
</TABLE>

NOTE N--PREFERRED STOCK

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

The holders of Series B stock shall be entitled to vote only upon failure of
the Company to pay dividends if the Company is legally entitled to make such
payment. The Series B stock shall be convertible

F-17
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997, 1996 AND 1995

NOTE N--PREFERRED STOCK (CONTINUED)
and may also be redeemed at any time after March 31, 1995, at the request of the
holder or the Company, at an amount equal to 110% of the contributed capital per
share of Preferred Stock plus all accrued and unpaid dividends. In addition, on
or before March 31, 1995, the Company may redeem the Series B stock at an amount
equal to 115% of contributed capital per share plus all accrued and unpaid
dividends in the event of a change of control of the Company or a public
offering of the Common Shares. There was no Preferred Stock issued or
outstanding at March 31, 1996 and 1997.

NOTE O--CONVERTIBLE DEBT

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

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

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

NOTE P--STOCKHOLDERS' EQUITY

1. STOCK SPLIT

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

2. ESCROW AGREEMENT

Certain stockholders, directors and officers of the Company (the "Security
Holders") placed an aggregate of 855,300 of their currently outstanding Company
shares in escrow (the "Escrowed Shares") in connection with the Company's public
offering of its Common Stock in May of 1994. The Escrow Agreement provides that
the Escrowed Shares be released to the Security Holders if the Company achieves
certain earnings requirements during the fiscal years ended March 31, 1995,
1996, 1997 and 1998. The Company has not achieved the requirements during its
1995, 1996 or 1997 fiscal years. In the event that the Company does not meet any
of the earnings requirements by March 1998, all of the escrowed

F-18
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997, 1996 AND 1995

NOTE P--STOCKHOLDERS' EQUITY (CONTINUED)
shares shall be released in March 1999. If any Security Holder exercises
warrants or options to acquire additional Common shares of the Company
("Additional Shares"), one-third of such Additional Shares must be placed in
escrow and will be released pursuant to the Escrow Agreement as if they were
Escrowed Shares.

NOTE Q--STOCK OPTIONS AND WARRANTS

1. INCENTIVE STOCK OPTION PLAN

Effective November, 1993, the Company adopted a Stock Option Plan (the "1993
Plan") under which options to purchase a maximum of 1,250,000 shares of Common
Stock may be granted to selected officers, directors and key full-time salaried
employees of the Company. Under the 1993 Plan, options may, at the discretion of
the Board of Directors, be granted either as Incentive Stock Options (as defined
in the Internal Revenue Code of 1986, as amended) or as Nonstatutory Stock
Options. The options will have an exercise price of not less than the fair
market value of the Common Stock on the date the option is granted and, unless
otherwise provided by the Board of Directors, will vest over a five-year period,
with 20% of the shares exercisable at the end of each year the grantee has
completed as a director or employee of the Company.

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

<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C> <C>
Net loss...................................... As reported $ (5,326,192) $ (3,966,426)
Pro forma..... $ (5,718,452) $ (4,083,046)
Net loss per share............................ As reported $ (.46) $ (.61)
Pro forma $ (.50) $ (.63)
</TABLE>

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

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

F-19
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997, 1996 AND 1995

NOTE Q--STOCK OPTIONS AND WARRANTS (CONTINUED)
A summary of the status of the Company's fixed stock option plan and
warrants issued to directors and officers as of March 31, 1997 and 1996 and
changes during the years then ended are presented below.

<TABLE>
<CAPTION>
1997 1996
------------------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year................................. 1,100,000 $ 1.89 298,750 $ 2.56
Granted
Options........................................................ 1,183,500 $ .75 1,100,000 $ 1.89
Warrants....................................................... 1,200,000 $ .75 -- $ --
Exercised........................................................ -- $ -- -- $ --
Forfeited........................................................ (1,241,000) $ 1.76 (298,750) $ 2.56
------------ -----------
Outstanding at end of year....................................... 2,242,500 .75 1,100,000 $ 1.89
Options and warrants exercisable at year end..................... 1,719,014 $ .75 87,000 $ 1.89
Weighted-average fair value of options and warrants granted
during the year................................................ $ .20 $ .62
</TABLE>

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

<TABLE>
<CAPTION>
Number outstanding............................................ 2,242,500
<S> <C>
Range of exercise prices...................................... $ .75
Weighted-average exercise price............................... $ .75
Weighted-average remaining life............................... 3.25
</TABLE>

2. WARRANTS

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

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

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

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

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

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

F-20
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997, 1996 AND 1995

NOTE Q--STOCK OPTIONS AND WARRANTS (CONTINUED)
In September 1996, the Company granted warrants to purchase 769,230 shares
of common stock at $1.25 per share in conjunction with a stock subscription
agreement. The warrants expire September 23, 1998.

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

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

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

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

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

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

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

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

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASE
---------- ------------
<S> <C> <C>
1998................................................................ $ 42,240 $ 1,408,740
1999................................................................ 42,240 1,258,921
2000................................................................ 42,240 1,165,787
2001................................................................ 38,720 896,444
2002................................................................ -- 590,201
Thereafter.......................................................... -- 768,784
---------- ------------
Future minimum lease payments....................................... 165,440 $ 6,088,877
------------
------------
Amounts representing interest....................................... 42,005
----------
Present value of minimum lease payments............................. $ 123,435
----------
----------
</TABLE>

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

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

F-21
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997, 1996 AND 1995

NOTE R--LEASE COMMITMENTS, RENT EXPENSE, AND DEPOSIT (CONTINUED)
Rent expense included in these financial statements for facilities leased by
the Company is $1,970,428, $1,214,064, and $114,090 for the applicable years
ended March 31, 1997, 1996 and 1995, respectively.

NOTE S--INCOME TAXES

As of March 31, 1997, the Company has accumulated net operating losses of
approximately $12,8000,000. These losses can be carried forward and applied
against future income of the Company for federal and state income tax purposes.
The net operating losses will begin to expire in 2008 for federal purposes and
in 2002 for state purposes, if not previously utilized. For state income tax
purposes, the use of the net operating loss is limited to approximately 50% of
the federal net operating loss. Under U.S. tax rules, the Company, as a result
of the Paradise acquisition is subject to certain limitations as to the use of
net operating losses in any one year. A valuation allowance totally offsets the
balance of the deferred tax asset related to these net operating losses, as it
is more likely than not that the Company will not realize the deferred tax
assets.

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

NOTE T--COMMITMENTS

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

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

NOTE U--SIGNIFICANT FOURTH QUARTER ADJUSTMENTS

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

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

F-22
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1997, 1996 AND 1995

NOTE U--SIGNIFICANT FOURTH QUARTER ADJUSTMENTS (CONTINUED)
As of March 31, 1997, the Company recorded an adjustment to the value of the
233,333 shares of GFF preferred stock in the amount of approximately $230,000
(see Note J).

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

NOTE V--SUBSEQUENT EVENTS

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

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

F-23
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31,
1997
SEPTEMBER 30, --------------
1997
--------------
(UNAUDITED)
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents....................................................... $ 414,000 $ 351,000
Notes receivable--current....................................................... 274,000 448,000
Accounts receivable, net........................................................ 515,000 592,000
Inventories..................................................................... 291,000 314,000
Prepaid expenses and other...................................................... 164,000 397,000
-------------- --------------
Total current assets.......................................................... 1,658,000 2,102,000

PROPERTY AND EQUIPMENT, NET....................................................... 2,514,000 2,781,000
NOTES RECEIVABLE.................................................................. 265,000 990,000
NOTES RECEIVABLE--OFFICER......................................................... 225,000 241,000
DEFERRED CHARGES AND OTHER........................................................ 357,000 317,000
INVESTMENT........................................................................ 547,000 547,000
INTANGIBLE ASSETS................................................................. 3,891,000 4,041,000
-------------- --------------
$ 9,457,000 $ 11,019,000
-------------- --------------
-------------- --------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable................................................................ $ 1,274,000 $ 1,124,000
Accrued liabilities............................................................. 727,000 619,000
Due to related parties.......................................................... 165,000 44,000
Current maturities of long-term debt............................................ 3,082,000 1,946,000
Convertible debt................................................................ -- 1,197,000
Current capital lease obligations............................................... 28,000 28,000
-------------- --------------
Total current liabilities..................................................... 5,276,000 4,958,000

DEFERRED REVENUES................................................................. 515,000 576,000
CONVERTIBLE DEBT.................................................................. -- 249,000
CAPITAL LEASES.................................................................... 84,000 96,000
OTHER LIABILITIES................................................................. 97,000 70,000
STOCKHOLDERS' EQUITY:
Common stock, no par, 25,000,000 shares authorized, issued and outstanding
shares; 22,005,044 at September 30, 1997, and 13,743,804 at March 31, 1997.... 19,317,000 18,508,000
Accumulated deficit............................................................. (15,832,000) (13,438,000)
-------------- --------------
3,485,000 5,070,000
-------------- --------------
$ 9,457,000 $ 11,019,000
-------------- --------------
-------------- --------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-24
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER SIX MONTHS ENDED
30, SEPTEMBER 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Company cafe sales................................. $ 2,259,000 $ 3,542,000 $ 4,444,000 $ 7,556,000
Franchise operations............................... 54,000 123,000 104,000 203,000
Royalties.......................................... 318,000 317,000 616,000 614,000
Sales of equipment and supplies.................... 18,000 10,000 33,000 108,000
------------- ------------- ------------- -------------
Total revenue.................................... 2,649,000 3,992,000 5,197,000 8,481,000

Cost of company sales:
Food and beverage.................................. 776,000 1,230,000 1,520,000 2,652,000
Labor.............................................. 791,000 1,259,000 1,556,000 2,745,000
Direct and occupancy............................... 514,000 701,000 1,011,000 1,564,000
Cost of equipment and supplies..................... 6,000 1,000 24,000 102,000
Depreciation....................................... 120,000 162,000 240,000 321,000
Other.............................................. 42,000 41,000 42,000 90,000
------------- ------------- ------------- -------------
Total cost of company sales...................... 2,249,000 3,394,000 4,393,000 7,474,000

Selling, general and administrative.................. 1,122,000 1,009,000 2,061,000 2,112,000
Depreciation and amortization........................ 103,000 160,000 207,000 319,000
Loss associated with cart and cafe closure........... 475,000 130,000 475,000 129,000
Bad debt expense..................................... 50,000 -- 123,000 --
Settlement expense................................... 31,000 -- 55,000 --
Loss (gain) on sale of cafes......................... -- 30,000 -- (36,000)
------------- ------------- ------------- -------------
Total operating loss............................. (1,381,000) (731,000) (2,117,000) (1,517,000)

Other income (expense):
Interest expense................................... (223,000) (90,000) (332,000) (178,000)
Interest income.................................... 12,000 25,000 41,000 48,000
Other income....................................... 9,000 48,000 14,000 136,000
------------- ------------- ------------- -------------
Net loss......................................... $ (1,583,000) $ (748,000) $ (2,394,000) $ (1,511,000)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net loss per weighted average equivalent common share
outstanding........................................ $ (0.10) $ (0.07) $ (0.16) $ (0. 15)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Equivalent common shares outstanding................. 16,502,573 10,946,633 15,439,364 9,985,470
</TABLE>

The accompanying notes are an integral part of these statements.

F-25
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
----------------------------
1997 1996
------------ --------------
<S> <C> <C>
Increase (decrease) in cash Net cash flows from operating activities:............... $ (195,000) $ (1,138,000)
------------ --------------
Cash flows from investing activities: Purchase of property and equipment............ (30,000) (200,000)
Proceeds from the sale of assets.................................................... -- 351,000
------------ --------------
Net cash provided by (used in) investing activities............................... (30,000) 151,000
------------ --------------
Cash flows from financing activities:
Proceeds from warrant conversions................................................. 142,000 --
Proceeds from the issuance of common stock.......................................... 272,000 963,000
Proceeds from short term borrowings and capital lease obligations................... 225,000 815,000
Principal payment on notes payable and capital lease obligations.................... (351,000) (475,000)
------------ --------------
Net cash provided by (used in) financing activities............................... 288,000 1,303,000
------------ --------------
Net (decrease) in cash............................................................ 63,000 316,000
Cash and cash equivalents, beginning of period...................................... $ 351,000 $ 1,182,000
------------ --------------
Cash and cash equivalents, end of period............................................ $ 414,000 $ 1,498,000
------------ --------------
------------ --------------
Cash paid for:
Interest...................................................................... $ 149,000 $ 205,000
</TABLE>

NON-CASH TRANSACTIONS:

During the six months ended September 30, 1997, the Company decreased
deferred revenues through accounts and notes receivable totaling $70,000, and
during the six months ended September 30, 1996, the Company increased deferred
revenues through accounts and notes receivable totaling $290,000.

During the six months ended September 30, 1996, the Company terminated eight
franchise agreements, refunded $28,000, and canceled $45,000 in notes associated
with franchise fees.

During the six months ended September 30, 1997, the holders of the
convertible debt converted $446,000 of the notes into 2,386,226 common shares of
stock pursuant to the terms of the notes. During the six months ended September
30, 1996, the holders of the convertible debt converted $1,750,000 of the notes
into 2,580,194 shares of common stock pursuant to the terms of the notes.

During the fiscal year ended March 31, 1997 the Company issued 200,000
shares of common stock valued at $50,000 pursuant to a consulting agreement.
During the six months ended September 30, 1997, the Company recognized
consulting expense of $42,000 as a result of issuance of these shares.

F-26
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

During the fiscal year ended March 31, 1997, the Company issued warrants valued
at $240,000 pursuant to consulting agreements. During the six months ended
September 30, 1997, the Company recognized consulting expenses of $102,000 as a
result of issuance of these warrants.

During the six months ended September 30, 1997 and September 30, 1996 the
Company expensed $447,000 and $640,000, respectively, for depreciation and
amortization.

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:

Sale of certain assets of Java Centrale, Inc., and subsidiary for the six
months ended September 30, 1996.

<TABLE>
<S> <C>
Cash received.................................................... $ 351,000
Note receivable.................................................. 604,000
Liabilities assumed.............................................. 69,000
Net book value of assets sold.................................... (988,000)
---------
Gain on sale of assets........................................... $ 36,000
---------
---------
</TABLE>

F-27
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared without audit and do not include
certain notes and certain financial presentations normally required under
generally accepted accounting principles and, therefore, should be read in
conjunction with the Company's financial statements included with the Annual
Report, on Form 10-K filed with the Security and Exchange Commission for the
fiscal year ended March 31, 1997. It should be understood that accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year end. The results of operation for the six months ended September
30, 1997 are not necessarily indicative of results that can be expected for the
full fiscal year.

The September 30, 1997 financial statements included herein are unaudited.
They contain, however, all adjustments which in opinion of management, are
necessary to present fairly the financial position of the Company as of
September 30, 1997 and March 31, 1997; and the results of its operations and its
cash flows for the six months ended September 30, 1997 and 1996 respectively.

Certain reclassifications have been made to the 1996 financial statement to
conform to the 1997 presentation.

NOTE 2--STOCKHOLDERS' EQUITY

A. CONVERSION OF CONVERTIBLE DEBT.

The Company issued, through private placements, convertible notes in the
amount of $3,500,000.

The first note, in the amount of $2,000,000, was due on December 15, 1997,
with interest payable quarterly beginning on March 15, 1996, at the rate of 8%
per year. The note was convertible into common stock of the Company after
February 26, 1996, under certain terms and conditions. As of September 30, 1997,
$1,000,000 had been converted into 1,846,394 shares of common stock. The
remaining principal balance of $1,000,000 was restructured to remove the
conversion feature in July 1997. The restructured note is due no later than
January 1, 1998. Paradise Bakery, Inc. common shares have been pledged as
collateral and $250,000 has been added to the principal balance of the note as
consideration for the elimination of the conversion feature of the note.

The second series of notes, in the amount of $1,500,000, was due January 29,
1998, with interest payable quarterly beginning on March 15, 1996, at the rate
of 8% per year. These notes were convertible into common stock of the Company
after April 12, 1996, under certain terms and conditions. As of September 30,
1997, the entire $1,500,000 had been converted into 3,851,029 common shares.

B. WARRANTS EXERCISED

In May 1997 warrants were exercised for 575,000 common shares of stock for
proceeds of $142,000.

In September 1996 warrants were exercised for 250,000 shares of common stock
for proceeds of $63,000.

C. ISSUANCE OF ADDITIONAL COMMON SHARES

In August 1997 the Company entered into an agreement to raise equity capital
through a private placement. From September through October 1997, 25 units,
representing 6,250,000 common shares, were sold providing net proceeds of
$544,000 to the Company.

F-28
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY

NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--STOCKHOLDERS' EQUITY (CONTINUED)
During the six months ended September 30, 1996, the Company completed
certain private placements of restricted common shares resulting in the issuance
of 1,538,462 common shares for net proceeds of $900,000.

D. SALE OF ASSETS

In December of 1996, the Company sold the assets of Oh La La! to Good Food
Fast Companies, Inc. "GFF" for $1,250,000 in cash, 233,333 shares of preferred
stock and a $750,000 convertible note receivable due in 1999. On March 31, 1997,
the Company agreed with GFF to exchange $250,000 of the convertible note
receivable for the assumption of certain liabilities of the Company, exchange
233,333 preferred shares for 233,333 shares of common stock, accelerate a
payment of $145,000 due under the note receivable to May 1997 and convert the
remaining $355,000 balance of the note into 40,000 shares of GFF common stock.
The common shares of GFF as of September 30, 1997 have been valued at $2.00 per
share based on the estimated fair value of such shares at the time they were
acquired.

F-29
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article V of the Registrant's Amended and Restated Articles of Incorporation
(the "Articles") provides that the liability of directors of the Registrant for
monetary damages is eliminated to the fullest extent permissible under
California law.

Article VI of the Articles provides that the Registrant is authorized to
indemnify its directors and officers to the fullest extend permissible under
California law.

Article VI of the Registrant's Amended and Restated Bylaws (the "Bylaws")
provides, with certain qualifications, that the Registrant shall have the power
to indemnify any person, who is or is threatened to be made a party to
proceeding by reason of the fact that he or she is or was an officer, director,
employee, or agent of the Registrant, for all costs, expenses and other amounts
actually and reasonably incurred in connection with such proceeding. The
foregoing indemnification is conditioned upon a finding, by either (i) the
uninterested members of the Registrant's Board of Directors, (ii) its
shareholders, (iii) independent legal counsel in a written opinion, or (iv) the
court in which the proceeding is or was pending, that the person seeking
indemnification was acting in good faith and in a manner reasonably believed to
be in the best interests of the Registrant, or in the case of a criminal
proceeding that he or she had no reasonable cause to believe that his or her
conduct was unlawful.

As authorized by the foregoing Article and Bylaw provisions, the Registrant
and each of its Directors and executive officers individually have entered into
indemnification agreements whereby the Registrant agreed to indemnify such
individuals against any claims or expenses they may incur as a result of serving
the Registrant in those or other capacities, provided that the person seeking
indemnification was acting in good faith and in a manner reasonably believed to
be in or not opposed to the best interests of the Registrant, or in the case of
a criminal proceeding that he or she had no reasonable cause to believe that his
or her conduct was unlawful. Additionally, the Registrant has entered into
separate Indemnification Agreements, with the Registrant's principal corporate
shareholder and the corporation which holds all of that company's stock, which
provide similar indemnification against claims and expenses arising out of those
relationships and certain consulting arrangements between those entities and the
Registrant.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the various expenses in connection with the
sale and distribution of the Shares being registered, other than underwriting
discounts and commissions, if any, incurred by the Selling Stockholders in sales
of Shares effected through intermediaries. All of the amounts shown are
estimates except the Securities and Exchange Commission registration fee. The
Registrant will bear all of the expenses listed below.

<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission
Registration Fee................................................................... $ 4,316
Accounting Fees.................................................................... 10,000
Legal Fees......................................................................... 10,000
Miscellaneous...................................................................... 5,000
---------
Total.......................................................................... $ 29,316
---------
---------
</TABLE>

II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

Since January 1 1995, the Registrant has sold the following securities
without registration under the Securities Act. Unless otherwise indicated, no
underwriters participated in the transactions listed below. All shares and price
per share information has been restated to reflect the Company's one-for-ten
reverse stock split effective December 19, 1997.

1. On March 31, 1995, the Registrant issued 60,000 shares of its Common Stock
to Oh La La!, Inc., in a privately negotiated transaction, as part of the
consideration for the purchase of certain assets.

2. On August 30, 1995, the Registrant issued 10,000 shares of its Common Stock
to Samual Investors International, LDC, for proceeds of $562,100 in cash, in
a privately negotiated transaction. Associated with this transaction there
were underwriter fees of $86,126. On the basis of certain disclosures made
and agreements entered into by Samual Investors International LDC, the
Registrant believes that this transaction was exempt from registration under
the Securities Act by virtue of Regulation S.

3. On August 11, 1995, the Registrant issued 8,359 shares of its Common Stock
to Java Southeast Partners, L.P., a Delaware Limited Partnership, in a
privately negotiated transaction, as partial consideration for a
stock-for-stock exchange in a newly formed Delaware corporation Java
Southeast, Inc. This transaction was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof.

4. On September 8, 1995, the Registrant issued 12,457 shares of its Common
Stock to Graham Pacific, Inc., a Washington corporation, one of its former
franchisees, in a privately negotiated transaction as part of the
consideration for certain assets pursuant to an Agreement of Purchase and
Sale of Assets dated June 30, 1995. This transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof.

5. On September 11, 1995, the Registrant issued 4,500 share of its Common Stock
to Java State Street, Inc., a Massachusetts corporation, one of its former
franchisees, in a privately negotiated transaction as part of the
consideration for certain assets pursuant to an Agreement of Purchase and
Sale of Assets dated August 4, 1995. This transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof.

6. On September 11, 1995, the Registrant issued 300 shares of its Common Stock
to Alcott Simpson & Company, Inc. as compensation for certain financial and
other consulting services which had been and were expected to be rendered to
the Registrant by Alcott Simpson & Company, Inc. pursuant to a Consulting
Agreement dated July 2, 1995. This transaction was exempt from registration
under the Securities Act pursuant to Section 4(2) thereof.

7. September 11, 1995, the Registrant issued 20,000 shares of its Common Stock
to Franchise Development Corporation as compensation for certain financial
and other consulting services, which had been and were expected to be
rendered to the Registrant by Franchise Development Corporation pursuant to
a Consulting Agreement dated July 2, 1997. This transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof.

8. September 11, 1995, the Registrant issued 10,000 shares of its Common Stock
to Moore Emerging Markets Fund, Ltd., a British Virgin Islands corporation,
for an aggregate of $497,000 in cash, in a privately negotiated transaction.
Associated with this transaction, the Registrant paid underwriter fees of
$80,176. On the basis of certain disclosures made and agreements entered
into by Moore Emerging Markets Fund, Ltd., the Registrant believes that this
transaction was exempt from registration under the Securities Act by virtue
of Regulation S.

9. September 11, 1995, the Registrant issued 10,000 shares of its Common Stock
to Moore Global Investments Fund, Ltd., a British Virgin Islands
corporation, for $497,000 in cash, in a privately

II-2
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES (CONTINUED)
negotiated transaction. Associated with this transaction, the Registrant
paid underwriter fees of $80,176. On the basis of certain disclosures made
and agreements entered into by Moore Emerging Markets Fund, Ltd., the
Registrant believes that this transaction was exempt from registration under
the Securities Act by virtue of Regulation S.

10. September 12, 1995, the Registrant issued 25,000 shares of its Common Stock
to Kew Capital, Ltd., a British Virgin Islands corporation, for $1,656,250
in cash, in a privately negotiated transaction. Associated with this
transaction, the Registrant paid underwriter fees of $185,585. On the basis
of certain disclosures made and agreements entered into by Kew Capital,
Ltd., the Registrant believes that this transaction was exempt from
registration under the Securities Act by virtue of Regulation S.

11. September 20, 1995, the Registrant issued 28,000 shares of its Common Stock
to Banque Franck, a Swiss corporation, for $1,495,200 in cash, in a
privately negotiated transaction. Associated with this transaction, the
Registrant paid underwriter fees of $302,767. On the basis of certain
disclosures made and agreements entered into by Banque Franck., the
Registrant believes that this transaction was exempt from registration under
the Securities Act by virtue of Regulation S.

12. September 20, 1995, the Registrant issued 4,600 shares of its Common Stock
Mr. David Jones, an individual resident and citizen of Switzerland, for
$245,640 in cash, in a privately negotiated transaction. Associated with
this transaction, the Registrant paid underwriter fees of $49,740. On the
basis of certain disclosures made and agreements entered into by David
Jones, the Registrant believes that this transaction was exempt from
registration under the Securities Act by virtue of Regulation S.

13. On September 27, 1995, the Registrant issued 5,000 shares of its Common
Stock to GEM Ventures Inc., a Nevada corporation, one of its former
franchisees, in a privately negotiated transaction as part of the
consideration for certain assets pursuant to an Agreement of Purchase and
Sale of Assets dated August 18, 1995. This transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof.

14. On October 19, 1995, the Registrant issued 583 shares of its Common Stock to
Java Southeast Partners, L.P., a Delaware Limited Partnership, in a
privately negotiated transaction, as partial consideration for a
stock-for-stock exchange in a newly formed Delaware corporation Java
Southeast, Inc. This transaction was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof.

15. On October 25, 1995, the Registrant issued 2,000 shares of its Common Stock
to Lone Star Java, Inc., a Texas corporation, one of its former franchisees,
in a privately negotiated transaction as part of the consideration for
certain assets pursuant to an Agreement of Purchase and Sale of Assets dated
October 2, 1995. This transaction was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof.

16. On November 8, 1995, the Registrant sold 30,000 shares of its Common Stock
to Baycor Ventures, Inc. for an aggregate of $120,166, pursuant to the
exercise of certain stock purchase options originally issued to Baycor
Ventures, Inc. on September 16, 1992. This transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof.

17. On December 17, 1995, the Registrant issued additional 30,208 shares of its
Common Stock to Kew Capital, Ltd., a British Virgin Island corporation, as
an adjustment to the number of shares originally delivered pursuant to the
September 12, 1995 sale described above. The Company in connection with this
issuance received no additional compensation. On the basis of certain
disclosures made and agreements entered into by Kew Capital, Ltd., the
Registrant believes that this transaction was exempt from registration under
the Securities Act by virtue of Regulation S.

II-3
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES (CONTINUED)
18. On January 4, 1996, the Registrant issued additional 33,649 shares of its
Common Stock to Banque Franck, a Swiss corporation, as an adjustment to the
number of shares originally delivered pursuant to the September 12, 1995
sale described above. The Company in connection with this issuance received
no additional compensation. On the basis of certain disclosures made and
agreements entered into by Banque Franck., the Registrant believes that this
transaction was exempt from registration under the Securities Act by virtue
of Regulation S.

19. On January 4, 1996, the Registrant issued additional 9,012 shares of its
Common Stock to Mr. David Jones, an individual resident and citizen of
Switzerland, as an adjustment to the number of shares originally delivered
pursuant to the September 20, 1995 sale described above. The Company in
connection with this issuance received no additional compensation. On the
basis of certain disclosures made and agreements entered into by Mr. David
Jones., the Registrant believes that this transaction was exempt from
registration under the Securities Act by virtue of Regulation S.

20. On January 17, 1996, the Registrant issued 43,185 shares of its Common Stock
to Founders Venture, Inc., in a privately negotiated transaction, as partial
consideration for the purchase of certain Paradise Bakery, Inc. franchises
owned by the seller and valued in the aggregate at $383,038. This
transaction was exempt from registration under the Securities Act pursuant
to Section 4(2) thereof.

21. On January 17, 1996, the Registrant issued 7,407 shares of its Common Stock
to Venture 88, Inc., in a privately negotiated transaction, as partial
consideration for the purchase of certain Paradise Bakery, Inc. franchises
owned by the seller and valued in the aggregate at $84,439. This transaction
was exempt from registration under the Securities Act pursuant to Section
4(2) thereof.

22. On September 28, 1995, the Registrant exercised a conversion option under a
promissory Note held by PSSS, Inc. to convert the principal balance of the
Note into 2,340 shares of the Registrant's Common Stock. The Note had been
issued in 1995 as part of the consideration for the purchase of certain
assets of Oh-La-La!, Inc., the corporate predecessor of PSSS, Inc., in a
transaction approved by the Bankruptcy Court supervising the estate of
Oh-La-La!, Inc. The principal balance of the Note at the time of conversion
was $748,800. This transaction was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof. The shares so issued were
subsequently registered on a Registration Statement on Form S-3, (Commission
File Registration No. 33-80015), which became effective on January 4, 1996.

23. On April 26, 1996, the Registrant issued 4,000 shares of its Common Stock to
Out and Back Enterprises, Inc., a Illinois corporation, one of its former
franchisees, in a privately negotiated transaction, as part of the
consideration for certain of its assets pursuant to an Agreement of Purchase
and Sale of Assets. This transaction was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof.

24. September 9, 1996, the Registrant sold 25,000 shares of its Common Stock to
Growth Science Ventures, Inc., a Nevada corporation, for an aggregate of
$62,500, pursuant to the exercise of certain stock purchase options
originally issued to Growth Science Ventures, Inc. on June 12, 1997 pursuant
a Consulting Agreement. This transaction was exempt from registration under
the Securities Act pursuant to Section 4(2) thereof.

25. On September 25, 1996, the Registrant sold 76,9,23 shares to Alana Group,
Ltd., a British Virgin Islands corporation, for $485,000 in cash, in a
privately negotiated transaction. Underwriter fees associated with this
transaction totaled $42,000. On the basis of certain disclosures made and
agreements entered into by Alana Group, Ltd., the Registrant believes that
this transaction was exempt from registration under the Securities Act by
virtue of Regulation S.

II-4
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES (CONTINUED)
26. On September 25, 1996, the Registrant sold 76,9,23 shares to H.I.G.
Securities Investment, Ltd., a British Virgin Islands corporation, for
$485,000 in cash, in a privately negotiated transaction. Underwriter fees
associated with this transaction totaled $42,000. On the basis of certain
disclosures made and agreements entered into by to H.I.G. Securities
Investment, Ltd., the Registrant believes that this transaction was exempt
from registration under the Securities Act by virtue of Regulation S.

27. On February 27, 1997 the Registrant issued to One Capital Corporation 20,000
shares of Common Stock as partial compensation for certain financial and
other consulting services, which had been and were expected to be rendered
to the Registrant by One Capital Corporation. This transaction was exempt
from registration under the Securities Act pursuant to Section 4(2) thereof.

28. On April 22, 1997 the Registrant sold 30,000 shares of Common Stock to One
Capital Corporation for an aggregate of $73,125, pursuant to the exercise of
certain stock purchase options originally issued to One Capital Corporation.
This transaction was exempt from registration under the Securities Act
pursuant to Section 4(2) thereof.

29. On April 28, 1997 the Registrant sold 15,000 shares of Common Stock to One
Capital Corporation for an aggregate of $4,570, pursuant to the exercise of
certain stock purchase options originally issued to One Capital Corporation.
This transaction was exempt from registration under the Securities Act
pursuant to Section 4(2) thereof.

30. On May 13, 1997 the Registrant sold 7,500 shares of Common Stock to One
Capital Corporation for an aggregate of $22,852, pursuant to the exercise of
certain stock purchase options originally issued to One Capital Corporation.
This transaction was exempt from registration under the Securities Act
pursuant to Section 4(2) thereof.

31. On August 26, 1997 the Registrant issued to One Capital Corporation 10,000
shares of Common Stock as partial compensation for certain financial and
other consulting services, which had been and were expected to be rendered
to the Registrant by One Capital Corporation. This transaction was exempt
from registration under the Securities Act pursuant to Section 4(2) thereof.

II-5
<PAGE>
ITEM 27. EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Articles of Incorporation (filed as Exhibit 3.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended March 31, 1994, and by this reference incorporated
herein).

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

3.3 Certificate of Amendment of Articles of Incorporation dated December 19, 1997.

4.1 Form of A Stock Purchase Warrant.

4.2 Form of B Stock Purchase Warrant.

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

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

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

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

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

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

4.9 Form of Convertible Note, dated January 29, 1996, issued to Santina Holding, Inc., (filed as Exhibit
No. 4.5 to the Registrant's Registration Statement on Form S-3 dated February 21, 1996, [Commission
File No.333-1526], and by this reference incorporated herein.).

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

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

II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
4.12 Form of Convertible Note, dated December 15, 1995, between Registrant and Legong Investments, N.V.,
(filed as Exhibit No. 4.2 to the Registrant's Registration Statement on Form S-3 dated January 2,
1996, [Commission File No.333-42], and by this reference incorporated herein.).

4.13 Amendment to Note Agreement with Legong Investment, N.V., dated July 10, 1997 (filed as Exhibit No.
30 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1997 and by
this reference incorporated herein).

4.14 Stock Purchase Warrant, dated June 24, 1997, issued by the Registrant to Legong Investment, N.V.
(filed as Exhibit No. 31 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
March 31, 1997 and by this reference incorporated herein).

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

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

4.17 Note agreement dated as November 19, 1997 between the Registrant and The Harmat Organization.

4.18 Escrow agreement dated as November 19, 1997 between the Registrant and the Harmat Organization.

4.19 Stock Purchase Warrant, dated as November 19, 1997, issued by the Registrant to The Harmat
Organization.

4.20 Amendment No. 2 to Note Agreement with Legong Investment, N.V., dated December 31, 1997

4.21 Stock Purchase Warrant, dated December 31, 1997, issued by the Registrant to Legong Investments, L.V.

4.22 Revised Stock Purchase Warrant, dated December 31, 1997, issued by the Registrant to Legong
Investments, L.V.

4.23 Stock Purchase Warrant, dated December 10, 1997, issued by the Registrant to Mustang '65, Limited
Partnership.

4.24 Compensation Agreement, dated December 10, 1997, between the Registrant and Mustang '65, Limited
Partnership

5 Opinion of Rosenblum, Parish & Isaacs, PC.

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

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

II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.3 Employment Agreement, dated February 1, 1994, between the Registrant and Thomas A Craig (filed as
Exhibit No. 10.31 to the Registrant's Registration Statement on Form S-1 dated March 17, 1994
(Commission File No. 33-76528), and by this reference incorporated herein).

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

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

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

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

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

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

10.10 Addendum No. 1 to Employment Agreement between the Registrant and Bradley B. Landin, dated January 1,
1997 (filed as Exhibit No. 10.24 to the Registrant Annual Report on form 10-K for the year ended
March 31, 1995, and by this reference incorporated herein).

10.11 Addendum No. 1 to Employment Agreement between the Registrant and Thomas A. Craig, dated January 1,
1997 (filed as Exhibit No. 10.25 to the Registrant Annual Report on form 10-K for the year ended
March 31, 1995, and by this reference incorporated herein).

10.12 Exchange Agreement with Good Food Fast Companies, Inc. and the Registrant dated March 31, 1997 (filed
as Exhibit No. 10.28 to the Registrant Annual Report on form 10-K for the year ended March 31,
1995, and by this reference incorporated herein).

10.13 Letter of Intent, dated September 30, 1997, between E. C. Capital, Ltd. and the Registrant (filed as
Exhibit No. 4.56 to the Registrant's Quarterly Report on Form 10-Q dated September 30, 1997, and by
this reference incorporated herein.).

10.14 Licensor Agreement dated December 12, 1997, between Host International, Inc. and Java Centrale, Inc.

10.15 Asset Purchase Agreement dated, January 13, 1998, between Massimo Da Milano, Inc. and Java Centrale,
Inc.

15 Letter from Grant Thornton LLC regarding unaudited interim financial information.

21 Subsidiaries of the Registrant.

23.1 Consent of Rosenblum, Parish & Isaacs, PC. (See Exhibit 5)
</TABLE>

II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
23.2 Consent of Grant Thornton LLP.

24 Power of Attorney.
</TABLE>

ITEM 28. UNDERTAKINGS.

(a) The undersigned hereby undertakes that it will:

(1) File, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to:

(i) Include any prospectus required by section 10(a)(3) of the
Securities 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; and Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" section of the effective
registration statement;

(iii) Include any additional or changed material information on
the plan of distribution;

(2) For determining any liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time shall
be deemed to be the initial bona fide offering thereof.

(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.

(b) Insofar as indemnification for liabilities arising under the
Securities 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 such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

II-9
<PAGE>
SIGNATURES

In accordance with the requirements of the Securities Act of 1933 the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this
Pre-Effective Amendment No. 3 to be signed on its behalf by the undersigned, in
the City of Sacramento, California, this 30th day of January 1998.

<TABLE>
<S> <C> <C>
JAVA CENTRALE, INC.

By: /s/ GARY C. NELSON
--------------------------------------
Gary C. Nelson
ITS PRESIDENT AND CHIEF EXECUTIVE
OFFICER (PRINCIPAL EXECUTIVE OFFICER)

And By: /s/ JEFFREY W. DUDLEY
--------------------------------------
Jeffrey W. Dudley
ITS VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
</TABLE>

II-10
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Pre-Effective Amendment No. 3 has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

<C> <S> <C>
/s/ RICHARD J. CROSBY*
- ------------------------------ Director and Chairman of January 30, 1998
Richard J. Crosby the Board

/s/ BRADLEY B. LANDIN
- ------------------------------ Director and Secretary January 30, 1998
Bradley B. Landin

/s/ GARY C. NELSON
- ------------------------------ Director, President, and January 30, 1998
Gary C. Nelson Chief Executive Officer

/s/ PHILIP E. PEARCE
- ------------------------------ Director January 30, 1998
Philip E. Pearce

* By: /s/ GARY C.
NELSON
-------------
Gary C. January 30, 1998
Nelson
Attorney in
Fact
</TABLE>

II-11
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
3.3 * Certificate of Amendment of Articles of Incorporation dated December 19, 1997

4.1 * Form of A Stock Purchase Warrant

4.2 * Form of B Stock Purchase Warrant

4.17* Note agreement dated as November 19, 1997 between the Registrant and The Harmat Organization.

4.18* Escrow agreement dated as November 19, 1997 between the Registrant and the Harmat Organization.

4.19* Stock Purchase Warrant, dated as November 19, 1997, issued by the Registrant to The Harmat
Organization.

4.20* Loan extension dated December 31, 1997, between Legong Investments N.V. and the Registrant.

4.21* Stock Purchase Warrants dated December 31, 1997, issued by the Registrant to Legong Investments
N.V.

4.22* Stock Purchase Warrants Amendment No. 1, original Stock Purchase Warrants issued June 24, 1997,
dated December 31, 1997, issued by the Registrant to Legong Investments, N.V.

4.23* Stock Purchase Warrant, dated December 10, 1997, issued by the Registrant to Mustang '65,
Limited Partnership.

5. Opinion of Rosenblum, Parish & Isaacs, PC

10.14* Licensor Agreement dated December 12, 1997, between Host International, Inc. and Java Centrale,
Inc.

10.15* Asset Purchase Agreement dated January 9, 1998 between Massimo Da Milano, Inc. and Java
Centrale, Inc.

15. Letter from Grant Thornton LLC regarding unaudited interim financial information. (See Exhibit
23.2)

21. * Subsidiaries of the Registrant

23.1 * Consent of Rosenblum, Parish & Isaacs, PC (See Exhibit 5)

23.2 Consent of Grant Thornton, LLP

24. * Power of Attorney (See signature page)
</TABLE>

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

* The following exhibits were filed previously.

II-12

<PAGE>

[LETTERHEAD]
EXHIBIT 5

January 30, 1998

Board of Directors
Java Centrale, Inc.
1610 Arden Way, Suite 299
Sacramento, CA 95815

Dear Sirs:

We refer to Pre-Effective Amendment No. 3 to the Form SB-2 Registration
Statement filed on even date herewith by Java Centrale, Inc. (the "Company")
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended, relating to 4,180,000 shares of the Company's no par value Common
Stock (the "Common Stock") and certain associated Common Stock Purchase
Warrants (the "Warrants").

As counsel to the Company, we have examined such corporate records, other
documents, and such questions of law as we have considered necessary or
appropriate for purposes of rendering this opinion and, on the basis of such
examination, advise you that, in our opinion:

1. The Common Stock and the Warrants have been duly and validly
authorized,

2. The Warrants described in the Registration Statement as currently
outstanding have been duly and validly issued and are outstanding,

3. The 625,000 shares of Common Stock described in the Registration
Statement as being currently outstanding have been duly and validly issued and
are non-assessable; and

4. The remaining 3,555,000 shares of Common Stock which are described in
the Registration Statement will be, when issued and sold in the manner
described in the Registration Statement, validly issued, fully paid, and
non-assessable.

<PAGE>

Board of Directors
Jaa Centrale, Inc.
Page 2

We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the references to this firm under the caption "Legal Matters"
in the Prospectus contained therein. This consent is not to be construed as an
admission that we are a person whose consent is required to be filed with the
Registration Statement under the provisions of Section 7 of the Securities Act
of 1933, as amended.

Very truly yours,

ROSENBLUM, PARISH & ISAACS, PC

By: /s/ PHILIP S. BOONE, JR.
---------------------------
A Member of the Firm

<PAGE>
[LOGO]
Grant Thornton LLP

EXHIBIT 23.2

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the inclusion in this Amendment No. 3 to the Registration
Statement No. 333-43343 of Java Centrale, Inc. on Form SB-2 of our report dated
July 8, 1997 accompanying the consolidated financial statements of Java
Centrale, Inc. and Subsidiary as of and for the three years ending March 31,
1997, and to the use of our name as it appears under the caption "Experts" in
the Prospectus which is part of the Registration Statement.

[SIGNATURE]

Sacramento, California

January 30, 1998