10QSB 1 a33738.txt CREATIVE BAKERIES, INC. 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, 2002 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, 2002 ------------------------------ ----------------------------------- Common Stock, par value 5,446,750 $0.001 per share INDEX Part I. Financial information Item 1. Condensed consolidated financial statements: Balance sheet as of September 30, 2002 F-2 Statement of operations for the nine and three months ended September 30, 2002 and 2001 F-3 Statement of cash flows for the nine months ended September 30, 2002 and 2001 F-4 Notes to condensed consolidated financial statements F-5 - F-8 Item 2. Management's discussion and analysis of financial condition Item 3. Legal proceedings
Part II. Other information Signatures CREATIVE BAKERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET - SEPTEMBER 30, 2002 (Unaudited)
ASSETS Current assets: Cash and cash equivalents $ 1,000 Accounts receivable, less allowance for doubtful accounts of $5,000 300,639 Inventories 200,690 Prepaid expenses and other current assets 36,217 ----------- Total current assets 538,546 ----------- Property and equipment, net 334,312 ----------- Other assets: Goodwill 50,000 Tradename, net of amortization 87,000 Security deposits 4,964 ----------- 141,964 $1,014,822 =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Cash overdraft $ 30,846 Accounts payable 492,370 Accrued expenses 127,461 Note payable 40,000 Stockholder loans 48,000 ----------- Total current liabilities 738,677 ----------- Other liabilities: Deferred rent 78,083 Loans payable, other 7,500 Net liabilities of discontinued operations less assets to be disposed of 478,606 ----------- 564,189 ----------- 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 5,446,750 shares 5,447 Additional paid in capital 11,341,093 Deficit (11,634,584) ----------- (288,044) $1,014,822 ===========
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, 2002 AND 2001 (Unaudited)
Nine Months Three Months Ended September 30, Ended September 30, 2002 2001 2002 2001 ---- ---- ---- ---- Net sales $ 2,264,168 $ 2,628,962 $ 808,512 $ 721,242 Cost of sales 1,985,106 2,241,425 778,290 696,008 ----------- ----------- ----------- ----------- Gross profit 279,062 387,537 30,222 25,234 Selling, general and administrative expenses 570,744 643,657 182,996 199,587 ----------- ----------- ----------- ----------- Loss from continuing operations and before other income (expense) (291,682) (256,120) (152,774) (174,353) ----------- ----------- ----------- ----------- Other income (expense): Forgiveness of debt 40,000 Loss on impairment of goodwill (493,573) (493,573) Miscellaneous income (2,393) Interest income 1,029 276 Interest expense (1,074) (6,749) (1,074) (1,365) ----------- ----------- ----------- ----------- 38,926 (499,293) (1,074) (497,055) ----------- ----------- ----------- ----------- Loss from continuing operations (252,756) (755,413) (153,848) (671,408) Discontinued operations: Income (loss) from operations of New York facility to be disposed of 1,756 (3,953) 442 (9,342) ----------- ----------- ----------- ----------- Net loss ($251,000) ($759,366) ($153,406) ($680,750) =========== =========== =========== =========== Earnings per common share: Primary and fully diluted: Loss from continuing operations ($0.05) ($0.14) ($0.03) ($0.13) Discontinued operations 0.00 (0.00) 0.00 (0.00) ----------- ----------- ----------- ----------- Net loss per common share ($0.05) ($0.14) ($0.03) ($0.13) =========== =========== =========== =========== Weighted average number of common shares outstanding 5,313,155 5,245,250 5,446,750 5,245,250 =========== =========== =========== ===========
See notes to condensed consolidated financial statements. F-3 CREATIVE BAKERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (Unaudited)
2002 2001 ---- ---- Operating activities: Loss from continuing operations ($252,756) ($755,413) Adjustments to reconcile loss from continuing operations to net cash used in continuing operations: Depreciation and amortization 95,465 133,050 Common stock issued for services 6,250 Bad debt 4,270 Loss on impairment of goodwill 493,573 Forgiveness of debt (40,000) Changes in other operating assets and liabilities from continuing operations: Accounts receivable (115) 68,453 Inventory (48,112) (36,032) Prepaid expenses and other current assets 35,399 21,704 Accounts payable 70,899 (57,040) Accrued expenses and other current liabilities (70,312) 6,719 Deferred rent (16,450) (20,050) --------- --------- Net cash used in continuing operations (215,462) (145,036) Net cash provided by discontinued operations 34,000 64,233 --------- --------- Net cash used in operating activities (181,462) (80,803) --------- --------- Investing activities: Purchase of property and equipment (58,000) (2,500) --------- --------- Net cash used in investing activities (58,000) (2,500) --------- --------- Financing activities: Cash overdraft 30,846 Proceeds from stockholder loans 48,000 Proceeds from note payable 45,000 Payment of note payable (5,000) (33,111) --------- --------- Net cash provided by (used in) financing activities 118,846 (33,111) --------- -------- Net decrease in cash and cash equivalents (120,616) (116,414) Cash and cash equivalents, beginning of period 121,616 129,320 --------- -------- Cash and cash equivalents, end of period $ 1,000 $ 12,906 ========= ========= Supplemental disclosures: Cash paid during the year for: Interest: Continuing operations $ 0 $ 6,749 ========= ========= Discontinued operations $ 0 $ 0 ========= =========
See notes to condensed consolidated financial statements. F-4 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 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, 2001 included in its Annual Report filed on Form 10-KSB. 2. Accounts receivable: Following is a summary of receivables at September 30, 2002: Trade accounts $305,639 Less allowance for doubtful accounts (5,000) -------- $300,639 ========
3. Inventories: Inventories at September 30, 2001 consist of: Finished goods $ 40,968 Raw materials 70,957 Supplies 88,765 -------- $200,690 ========
4. Property and equipment: Baking equipment $1,338,226 Furniture and fixtures 81,364 Leasehold improvements 180,422 ---------- 1,600,012 Less: Accumulated depreciation and amortization 1,265,700 ---------- $ 334,312 ==========
Depreciation expense charged to operations was $92,465 and 92,594 in 2002 and 2001, respectively. F-5 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 5. Intangible assets: On March 7, 2002 the Company purchased the rights to the tradenames Brooklyn Cheesecake Company, Inc. and Brooklyn Cheesecake and Desserts Company, Inc. and the related corporate logo in exchange for 300,000 shares of the Company's common stock, valued on the purchase date at $90,000. The tradename rights are being amortized on the straight-line basis over a fifteen year term. Amortization expense through September 30, 2002 amounted to $3,000. 6. Stockholder loans: A stockholder of the Company has made loans totalling $48,000 during the nine months ended September 30, 2002. The loans are due on demand and accrue interest at a rate of 7% per annum. 7. Common stock: During the quarter the Company issued 325,000 restricted shares of its common stock. 25,000 shares were issued under an employee stock incentive plan previously granted in February, 2002. The additional 300,000 shares were issued pursuant to the purchase agreement of the tradename and logo of Brooklyn Cheesecake Company, Inc. entered into in March 2002. The Company utilized all of its remaining 123,500 shares previously held as treasury stock plus new share issues to complete the stock transactions. 8. 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 commencing January 31, 1994 and expiring December 31, 2004. The minimum future rental on the baking facility is as follows:
Facility -------- September 30, 2003 $200,000 September 30, 2004 200,000 December 31, 2004 50,000 -------- $450,000 ========
Rent expense for all operating leases amounted to $149,601 in 2002 and $167,098 in 2001. F-6 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 9. 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 should not include the exercise of potential shares in the calculation of earnings per share since the increase would result in a lower loss per share. Thus, common stock purchase warrants and stock options are excluded from the calculation of earnings per share. Reconciliation of shares used in computation of earnings per share:
2002 2001 ---- ---- Weighted average of shares actually outstanding 5,446,750 5,121,750 Common stock purchase warrants --------- --------- Primary and fully diluted weighted average common shares outstanding 5,446,750 5,121,750 ========= =========
10. Related party transactions: The Company has a note payable due to Brooklyn Cheesecake, Inc. (BCI) in the amount of $40,000 at September 30, 2002. The Company's chief executive officer is also a former officer of BCI. The loan carries an interest rate of 7% and is due on demand. This amount is included under the note payable caption on the balance sheet. 11. Discontinued operations: 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. F-7 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 11. Discontinued operations (continued): The maturities of the notes are as follows: November 2002 $ 36,875 ========
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. Total liabilities, less assets to be disposed of, of WGJ Desserts, Inc. consisted of the following as of September 30, 2001: Liabilities: Accounts payable $112,462 Accrued expenses 403,911 -------- 516,373 -------- Assets: Notes receivable 36,875 Interest receivable 892 -------- 37,767 -------- Net liabilities $478,606 ========
Information relating to discontinued operations for WGJ Desserts and Cafes, Inc. for the nine months ended September 30, 2002 and 2001 is as follows:
2002 2001 ---- ---- Operating expenses $ 0 ($50,000) ------- -------- Loss from operations 0 (50,000) Forgiveness of debt 0 38,841 Interest income 1,756 7,206 ------- -------- Income (loss) from discontinued operations $1,756 ($ 3,953) ======= ========
F-8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS A. General The transition of the operating company's name change to Brooklyn Cheesecake and Desserts Company has been a smooth one. The vendors and customers have accepted the change and view this event as a positive enhancement to our corporate image. Management continues to refine operations and implement controls. A change in the position of controller will assist in implementing additional accounting controls as well as reducing overall fees associated with reporting of company financials. Management remains committed to presenting an accurate representation of the financial condition of the company. Marketing efforts to increase sales revenues is the most pressing issue. Fourth quarter sales forecasts are strong however; additional all year business is needed to reach profitability. Funds for marketing and capital equipment are scarce. The company has a negative cash flow of $200,131 however; this has been reduced by $69,706 as compared the same period of 2001. Mini Cakes and Cheesecake are the categories which represent the most potential for sales growth. Mini cakes are still being evaluated by QVC and several food service distributors have added the cheesecakes to their lines. A Japanese distributor was shipped a container of cheesecake at the end of August and a reorder is expected. At September 30, 2002 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 $8,680,450 which can be used to reduce the tax on income up to that amount through the year 2019. B. Results of Operations The Company's consolidated revenues from continuing operations aggregated $808,512 and $721,242 for the quarters ended September 30, 2002 and 2001 respectively, an increase of 12%. The cost of goods sold was $778,290 and $696,008 respectively, an increase of 1%. Operating expenses were $182,996 and $199,587 respectively, a decrease of .8%. As a result, the loss from continuing operations before other income (expense) was $152,774 and $174,353 respectively, a decrease of 12%. The net loss from continuing operations in the quarter was $153,848 and 671,408 respectively. The increase in sales volume is attributable to an increase in marketing of more profitable items. The sales revenue increased during the 3rd quarter of 2002 as compared to the same period of 2001 despite the loss of the revenues associated with the sold batter business. Depreciation and amortization for 3rd quarter 2002 decreased as compared to 3rd quarter 2001 due to assets written down or written off for the year ended December 31, 2001. The company's consolidated revenues from its discontinued operation, the WGJ subsidiary were $0 in 3rd quarter 2002 and 2001. The WGJ subsidiary showed a gain from discontinued operations of $442 in the 3rd quarter 2002 vs. a loss of 9342 in 3rd quarter of 2001 . SEGMENT INFORMATION: Not applicable since retail operations were discontinued. LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY Since its inception the Company's only source of working capital has been the $8,455,000 received from the issuance of its securities. As of September 30, 2002, the Company had a negative working capital from continuing operations of approximately $200,131 as compared to a negative working capital of $269,837 at September 30, 2001. CAPITAL RESOURCES: Although the Company has previously been successful in obtaining sufficient capital funds through issuance of common stock and warrants, there can be no assurance that the Company will be able to do so in the future. 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 11-13-02. CREATIVE BAKERIES, INC. By: /s/ 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 May 15, 2002.
Signatures Title ----- /s/Ron Schutte President, Chief Executive Officer/Director ---------------------------------- Ron Schutte Director ---------------------------------- Philip Grabow Director ---------------------------------- Richard Fechtor /s/ Raymond J. McKinstry Director ---------------------------------- Raymond J. McKinstry /s/Karen Brenner Director ---------------------------------- Karen Brenner /s/Yona Abrahami Director ---------------------------------- Yona Abrahami