10QSB 1 a31634.txt CREATIVE BAKERIES 10QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------- FORM 10-QSB (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2001 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1939 For the transition period from ________ to ________ Commission File Number: 1-13984 CREATIVE BAKERIES, INC. (Exact name of small business issuer as specified in its charter) New York 22-3576940 ------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number)
20 Passaic Avenue, Fairfield, NJ 07004 --------------------------------------- (Address of principal executive offices) Issuer's telephone number, including area code: (973) 808-9292 -------------- Former name: William Greenberg Jr. Desserts and Cafes, Inc. Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -- -- Indicate the number of Shares outstanding of each of the Issuer's classes of common stock, as of the latest practicable date. Class Outstanding at September 30, 2001 ------------------------------ --------------------------------- Common Stock, par value $0.001 per share 5,245,250
INDEX Part I. Financial information Item 1. Condensed consolidated financial statements: Balance sheet as of September 30, 2001 F-2 Statement of operations for the nine and three months ended September 30, 2001 and 2000 F-3 Statement of stockholders' equity for the period January 1, 2000 to September 30, 2001 F-4 Statement of cash flows for the nine months ended September 30, 2001 and 2000 F-5 Notes to condensed consolidated financial statements F-6 - F-11 Item 2. Management's discussion and analysis of financial condition
Part II. Other information Signatures CREATIVE BAKERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET - SEPTEMBER 30, 2001 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 12,906 Accounts receivable, less allowance for doubtful accounts of $15,500 277,328 Inventories 277,158 Prepaid expenses and other current assets 27,743 ------------ Total current assets 595,135 ------------ Property and equipment, net 399,726 ------------ Other assets: Goodwill, net of amortization 275,000 Security deposits 5,464 ------------ 280,464 ------------ $ 1,275,325 ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Notes payable, bank $ 74,159 Loans payable, other 7,500 Cash overdraft 39,400 Accounts payable 524,743 Accrued expenses 219,170 ------------ Total current liabilities 864,972 ------------ Other liabilities: Deferred rent 95,981 Net liabilities of discontinued operations less assets to be disposed of 424,442 ------------ 520,423 ------------ Stockholders' equity (deficiency): Preferred stock, $.001 par value, authorized 2,000,000 shares; none issued Common stock, $.001 par value, authorized 10,000,000 shares, issued and outstanding 5,245,250 shares 5,245 Additional paid in capital 11,364,074 Deficit (11,360,360) ------------ 8,959 Common stock held in treasury, 178,500 shares ( 119,029) ------------ ( 110,070) ------------ $ 1,275,325 ============
See notes to condensed consolidated financial statements. F-2 CREATIVE BAKERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (Unaudited)
Nine Months Three Months Ended September 30, Ended September 30, 2001 2000 2001 2000 ---- ---- ---- ---- Net sales $2,628,962 $3,063,675 $ 721,242 $ 954,948 Cost of sales 2,241,425 2,541,486 696,008 861,142 ---------- ---------- ---------- ---------- Gross profit 387,537 522,189 25,234 93,806 Selling, general and administrative expenses 643,657 795,758 199,587 272,463 ---------- ---------- ---------- ---------- Loss from continuing operations and before other income (expense) ( 256,120) ( 273,569) ( 174,353) ( 178,657) ---------- ---------- ---------- ---------- Other income (expense): Loss on impairment of goodwill ( 493,573) ( 493,573) Gain from sale of disposition of assets 5,750 5,750 Miscellaneous income (expense) 6,791 ( 2,393) 2,291 Interest income 1,029 3,619 276 738 Interest expense ( 6,749) ( 8,025) ( 1,365) ( 1,039) ---------- ---------- ---------- ---------- ( 499,293) 8,135 ( 497,055) 7,740 ---------- ---------- ---------- ---------- Loss from continuing operations ( 755,413) ( 265,434) ( 671,408) ( 170,917) Discontinued operations: Income (loss) from operations of New York facility to be disposed of ( 3,953) ( 20,062) ( 9,342) 4,403 ---------- ---------- ---------- ---------- Net loss ($ 759,366) ($ 285,496) ($ 680,750) ($ 166,514) ========== ========== ========== ========== Earnings per common share: Primary and fully diluted: Loss from continuing operations ($ 0.14) ($ 0.05) ($ 0.13) ($ 0.03) Discontinued operations ( 0.00) ( 0.00) ( 0.00) 0.00 ---------- ---------- ----------- ---------- Net loss per common share ($ 0.14) ($ 0.05) ($ 0.13) ($ 0.03) ========== ========== ========== ========== Weighted average number of common shares outstanding 5,245,250 5,245,250 5,245,250 5,245,250 ========== ========== ========== ==========
See notes to condensed consolidated financial statements. F-3 CREATIVE BAKERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY) JANUARY 1, 2000 TO SEPTEMBER 30, 2001
Common stock ---------------- Total Number Additional Stockholders' of Paid in Accumulated Treasury Equity Shares Amount Capital Deficit Stock (Deficiency) ------ ------ ------- ------- ----- ----------- Balance at January 1, 2000 5,245,250 $5,245 $11,510,064 ($10,363,621) ($334,244) $817,444 Purchase of treasury stock ( 112,774) ( 112,774) Treasury stock issued upon exercise of warrants (145,990) 327,989 181,999 Net loss for the year ended December 31, 2000 ( 237,373) ( 237,373) ---------- ------ ----------- ----------- -------- -------- Balance at December 31, 2000 5,245,250 5,245 11,364,074 (10,600,994) ( 119,029) 649,296 Net loss for the nine months ended September 30, 2001 ( 759,366) (759,366) ---------- ------ ----------- ----------- -------- -------- Balance at September 30, 2001 5,245,250 $5,245 $11,364,074 ($11,360,360) ($119,029) ($110,070) ========== ====== =========== =========== ======== ========
See notes to condensed consolidated financial statements. F-4 CREATIVE BAKERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (Unaudited)
2001 2000 ---- ---- Operating activities: Loss from continuing operations ($755,413) ($265,434) Adjustments to reconcile loss from continuing operations to cash used in continuing operations: Depreciation and amortization 133,050 156,602 Loss on impairment of goodwill 493,573 Gain on sale of equipment ( 5,750) Changes in other operating assets and liabilities from continuing operations: Accounts receivable 68,453 ( 2,735) Inventory ( 36,032) ( 19,386) Prepaid expenses and other current assets 21,704 66,208 Accounts payable ( 57,040) 27,007 Accrued expenses and other current liabilities 6,719 ( 101,583) Deferred rent ( 20,050) ( 16,083) --------- --------- Net cash used in operating activities ( 145,036) ( 161,154) Net cash provided by discontinued operations 64,233 64,233 --------- --------- Net cash used in operating activities ( 80,803) ( 161,042) --------- --------- Investing activities: Proceeds from sale of equipment 25,000 Purchase of property and equipment ( 2,500) ( 10,150) --------- --------- Net cash used in (provided by) investing activities ( 2,500) 14,850 --------- --------- Financing activities: Proceeds from issuance of common stock and warrants 182,000 Purchase of treasury stock ( 112,774) Payment of debt ( 33,111) ( 18,139) --------- --------- Net cash provided by (used in) financing activities ( 33,111) 51,087 --------- --------- Net decrease in cash and cash equivalents ( 116,414) ( 95,105) Cash and cash equivalents, beginning of period 129,320 114,971 --------- --------- Cash and cash equivalents, end of period $ 12,906 $ 19,866 ========= ========= Supplemental disclosures: Cash paid during the year for: Interest paid during the period Continuing operations $ 6,749 $ 5,418 ========= ========= Discontinued operations $ 0 $ 0 ========= =========
See notes to condensed consolidated financial statements. F-5 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 1. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for the nine months ended is not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report for the year ended December 31, 2000 included in its Annual Report filed on Form 10-KSB. 2. Principles of consolidation: The accompanying consolidated financial statements include the account of the Company and all of its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. 3. Nature of operations, risks and uncertainties: The Company is a manufacturer of baking and confectionery products which are sold to supermarkets, food distributors, educational institutions, restaurants, mail order and to the public. Although the Company sells its products throughout the United States, its main customer base is on the East Coast of the United States. The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. The Company maintains all of its cash balances in New Jersey financial institutions. The balances are insured by the Federal Deposit Insurance Company (FDIC) up to $100,000. At September 30, 2001, the Company had no uninsured cash balances. F-6 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 4. Accounts receivable: Following is a summary of receivables at September 30, 2001: Trade accounts $292,828 Less allowance for doubtful accounts ( 15,500) -------- $277,328 ======== At September 30, 2001, accounts receivable in the amount of $386,035 was pledged as collateral in connection with the Company's line of credit. 5. Inventories: Inventories at September 30, 2001 consist of: Finished goods $127,195 Raw materials 101,752 Supplies 48,211 -------- $277,158 ======== 6. Property and equipment: Baking equipment $1,280,226 Furniture and fixtures 81,364 Leasehold improvements 180,422 ---------- 1,542,012 Less: Accumulated depreciation and amortization 1,142,286 ---------- $ 399,726 ========== F-7 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 6. Property and equipment (continued): Depreciation expense charged to operations was $73,844 and $95,918 in 2001 and 2000, respectively. Machinery and equipment with a cost of $197,000 is pledged as collateral for the Company's line of credit. The useful lives of property and equipment for purposes of computing depreciation are: Years ----- Machinery and equipment 10 Furniture and computers 5 Leasehold improvements 10-15 7. Intangible assets: The acquisition agreement of Greenberg's - L.P. contained a provision for a covenant not to compete of $125,000 which management is amortizing over its five year term. Amortization of the covenant charged to operations was $18,750 in 2001 and 2000. The excess cost over the fair value of the net assets acquired from J.M. Specialties, Inc. aggregated $1,213,565. This goodwill has been amortized over its estimated useful life of fifteen years. Amortization charged to operations amounted to $40,456 in 2001 and $60,684 in 2000. The Company has determined that the goodwill pertaining to J.M. Specialties, Inc. is impaired. See Note 13. 8. Note payable, bank: As of September 30, 2001, the Company had an available revolving line of credit with Hudson United Bank in the amount of $150,000, of which $74,159 had been utilized at September 30, 2001. The interest rate at September 30, 2001 was 9.50%. F-8 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 9. Commitments and contingencies: The Company is obligated under a triple net lease for use of 29,362 square feet of office and plant space in New Jersey with the lease expiring December 31, 2004. The minimum future rentals on the baking facility is as follows: Facility -------- September 30, 2002 $200,000 September 30, 2003 200,000 September 30, 2004 200,000 Thereafter 100,000 -------- $700,000 ======== Rent expense for all operating leases amounted to $167,098 in 2001 and $156,856 in 2000. 10. Income taxes: The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS No. 109") "Accounting for Income Taxes", which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and income tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period, plus or minus the change during the period in deferred tax assets and liabilities. There was no cumulative effect of adoption or current effect in continuing operations mainly because the Company has accumulated a net operating loss. The Company has made no provision for a deferred tax asset due to the net operating loss carryforward because a valuation allowance has been provided which is equal to the deferred tax asset. It cannot be determined at this time that a deferred tax asset is more likely than not to be realized. The Company has a loss carryforward of $7,897,694 that may be offset against future taxable income. The carryforward losses expire at the end of the years 2006 through 2018. F-9 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 11. Earnings per share: Primary earnings per share is computed based in the weighted average number of shares actually outstanding plus the shares that would have been outstanding assuming conversion of the common stock purchase warrants which are considered to be common stock equivalents. However, according to FASB 128, effective for financial statements issued and annual periods issued after December 15, 1997, entities with a loss from continuing operations, the exercise of any potential shares increases the number of shares outstanding and results in a lower loss per share. Thus, potential issuances are excluded from the calculation of earnings per share. These common stock purchase warrants amounted to 0 in 2001 and 1,339,575 in 2000. Reconciliation of shares used in computation of earnings per share:
2001 2000 ---- ---- Weighted average of shares actually outstanding 5,245,250 5,245,250 Common stock purchase warrants --------- --------- Primary and fully diluted weighted average common shares outstanding 5,245,250 5,245,250 ========= =========
12. Discontinued operations: In 1998, the Company adopted a formal plan to close WGJ Desserts and Cafes, Inc., its New York manufacturing facility, which was done in July of 1998 and to dispose of its one remaining retail store, which was accomplished in November 1998. The New Jersey facility was unaffected and still continues to sell and manufacture. On November 3, 1998, the Company sold its one remaining retail facility for $405,000 which represented disposition of equipment and a license to sell under the "William Greenberg, Jr. Desserts and Cafes" name. The agreement called for a cash down payment of $110,000 with the remainder being paid on a note receivable due in semi-annual installments of $36,875 plus interest at prime. The maturities of the notes are as follows: September 30, 2002 $ 73,750 September 30, 2003 36,875 -------- $110,625 ======== In the event that the licensee opens and operates any additional retail store(s) utilizing the license (other than the original retail store) and the annual gross retail sales of any such store(s) exceeds $400,000, then the licensee shall pay the licensor (the Company) a five percent royalty on all sales in excess of the $400,000 of sales in each store. The licensee shall pay the licensor a royalty on a semi-annual basis of 3% of all mail order sales in excess of $100,000. F-10 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 12. Discontinued operations (continued): Net liabilities, less assets to be disposed of, of WGJ Desserts, Inc. consisted of the following as of September 30, 2001: Liabilities: Accounts payable $133,380 Accrued expenses 403,911 -------- 537,291 -------- Assets: Notes receivable 110,625 Interest receivable 2,224 -------- 112,849 -------- $424,442 ======== Information relating to discontinued operations for WGJ Desserts and Cafes, Inc. for the nine months ended September 30, 2001 and 2000 is as follows:
2001 2000 ---- ---- Operating expenses ($50,000) ($33,615) ------- ------- Net loss from operations ( 50,000) ( 33,615) Forgiveness of debt 38,841 Interest income 7,206 13,553 --------- -------- Net loss from discontinued operations ($ 3,953) ($20,062) ========= ========
13. Impairment of goodwill: The Company has determined that the goodwill relating to its subsidiary J.M. Specialties, Inc. is impaired and has taken a one-time charge of $493,573 on its statement of operations for the third quarter of 2001. The batter business to which the goodwill relates has seen decreasing profit margins and sales over the last several quarters and a decision to sell the line has been approved by the board of directors. A prospective buyer has been identified and the purchase price has been used to estimate fair value of the remaining goodwill. The amount of the loss is determined as follows: Asset cost $1,213,565 Less: accumulated amortization 444,992 ---------- Carrying amount 768,573 Fair value of impaired asset ( 275,000) ---------- Impairment loss $ 493,573 ========== F-11 Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operation: The Company continues the process of reconfiguring its product mix and cost structure to ensure adequate margins despite reduction in sales volume. The Company has determined that the goodwill relating to its subsidiary J.M. Specialties is impaired and has taken a one-time charge of $478,573 on its statement of operations for the third quarter of 2001. Co-packing arranagements for frozen cheesecakes for both food service and export to Japan have begun and the sales forecasts are encouraging. Additional co-packing arrangements for fund raising are in process for fiscal year 2002. Food service and fund raising brokers have been appointed. The Company will continue to seek out potential candidates for merger or acquisition that meet its specific needs. At September 30, 2001 to the extent the Company may have taxable income in future periods, there is available a net operating loss for federal income tax purposes of approximately $7,897,694 which can be used to reduce the tax on income up to that amount through the year 2018. b. Results of Operations (continuing) for three months ending September 30, 2001 vs. three months ended September 30, 2000: The Company's consolidated revenues aggregated $721,242 vs. $954,948. The cost of goods sold was $696,008 vs. $861,142. Operating expenses were $199,587 vs. $272,463. As a result, the loss from operations was $174,353 vs. $178,657. The net interest expense for the quarter was $1,365. The net loss from continuing operations aggregated $671,408 ($0.13) per share vs. $170,917 ($.03) per share. Net loss from discontinued operations was $9,342 or ($0.00) per share vs. ($4,403) or $0.00 per share. Batter Bake-Chatterley Inc., (the BBC subsidiary) offers a line of batter and frozen finished cakes, muffins, tart shells and other desserts. BBC's financial records and affairs are kept separate from the parent but included in the consolidated financial statements at September 30, 2001 and 2000. c. Plan of Operation: Wholesale Operations: The company's plan of action is to increase wholesale sales with fewer but profitable products. This process includes the following: Reengineering the overhead cost structure to fit the reduced size of the company. Brokers have been appointed and sales calls are being made to supermarket headquarters, chain restaurant accounts, fund raisers, and potential export customers. Enter into co-packing arrangements whereby the company would introduce private label products of other bakery operations. Liquidity and Capital Resources: Since its inception the Company's only source of working capital has been the proceeds from the issuance of its securities. As of September 30, 2001, the Company has a negative working capital of approximately $269,837 as compared to a negative working capital of $242,585 at September 30, 2000. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 16, 2001. CREATIVE BAKERIES, INC. By: /s/ Ron Schutte ------------------------------ Ron Schutte President and Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 31, 2000.
Signatures Title ----- /s/ Ron Schutte President/Chief Executive Officer -------------------------------- Ron Schutte /s/ Philip Grabow Director -------------------------------- Philip Grabow -------------------------------- Director -------------------------------- Richard Fechtor /s/ Raymond J. McKinstry Director -------------------------------- Raymond J. McKinstry /s/ Kenneth Sitomer Director -------------------------------- Kenneth Sitomer /s/ Karen Brenner Director -------------------------------- Karen Brenner /s/ Yona Abrahami Director -------------------------------- Yona Abrahami