-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VqeTvcrkFtCiMClVR6YxsTzAxLkNTypNOV5D4S4U3MdPgBui+EEcQMdXWvzs5lQU aw2Pj4l77060F+MUmidYXA== 0000950117-99-001137.txt : 19990521 0000950117-99-001137.hdr.sgml : 19990521 ACCESSION NUMBER: 0000950117-99-001137 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990520 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CREATIVE BAKERIES INC CENTRAL INDEX KEY: 0000949721 STANDARD INDUSTRIAL CLASSIFICATION: BAKERY PRODUCTS [2050] IRS NUMBER: 133832215 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-13984 FILM NUMBER: 99631251 BUSINESS ADDRESS: STREET 1: 20 PASSAIC AVE CITY: FAIRFIELD STATE: NJ ZIP: 07004 MAIL ADDRESS: STREET 1: 20 PASSAIC AVE CITY: FAIRFIELD STATE: NJ ZIP: 07004 FORMER COMPANY: FORMER CONFORMED NAME: WILLIAM GREENBERG JR DESSERTS & CAFES INC DATE OF NAME CHANGE: 19950918 10QSB 1 CREATIVE BAKERIES, INC. 10-QSB 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 March 31, 1999 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 13-3832215 (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 March 31, 1999 - ---------------------------------------- ----------------------------- Common Stock, par value $0.001 per share 5,107,250
INDEX Part I. Financial information Item 1. Condensed consolidated financial statements: Balance sheet as of March 31, 1999 F-2 Statement of operations for the three months ended March 31, 1999 and 1998 F-3 Statement of cash flows for the three months ended March 31, 1999 and 1998 F-4 Notes to condensed consolidated financial statements F-5 - F-13 Item 2. Management's discussion and analysis of financial condition
Part II. Other information Signatures Item 1. CREATIVE BAKERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET - MARCH 31, 1999 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 155,964 Accounts receivable, less allowance for doubtful accounts of $16,000 300,709 Loans receivable 28,940 Inventories 267,125 Prepaid expenses and other current assets 42,614 ----------- Total current assets 795,352 ----------- Property and equipment, net 700,578 ----------- Other assets: Goodwill, net of amortization 950,625 Security deposits 5,464 ----------- 956,089 ----------- $2,452,019 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 27,299 Notes payable, bank 145,241 Loans payable, other 26,500 Accounts payable 515,642 Payroll taxes payable 104,090 Accrued expenses 295,878 ----------- Total current liabilities 1,114,650 ----------- Other liabilities: Deferred rent 147,917 Net liabilities of discontinued operations less assets to be disposed of 518,721 ----------- 666,638 ----------- Stockholders' equity: Preferred stock, $.001 par value, authorized 2,000,000 shares; none issued Common stock, $.001 par value, authorized 10,000,000 shares, issued 5,291,750 shares 5,292 Additional paid in capital 11,493,898 Deficit (10,581,090) ----------- 918,100 Common stock held in treasury, 184,500 shares (247,369) ----------- 670,731 ----------- $2,452,019 ===========
See notes to condensed consolidated financial statements. F-2 CREATIVE BAKERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (Unaudited)
1998 1999 Restated ---- -------- Net sales $907,435 $1,003,761 Cost of sales 718,714 851,384 ---------- ---------- Gross profit 188,721 152,377 Selling, general and administrative expenses 297,106 358,064 ---------- ---------- Operating loss from continuing operations (108,385) (205,687) ---------- ---------- Other income (expenses): Sale of marketable securities 3,216 Miscellaneous income 36,132 Interest income 2,077 4,138 Interest expense (2,207) (12,978) ---------- ---------- 39,218 (8,840) ---------- ---------- Loss from continuing operations (69,167) (214,527) Discontinued operations: Loss from operations of New York facility to be disposed of (29,722) (212,719) ---------- ---------- Net loss ($ 98,889) ($427,246) ========== ========== Earnings per common share: Primary and fully diluted: Loss on continuing operations ($0.01) ($0.04) Loss from discontinued operations (0.01) ( 0.04) ---------- ---------- Net loss per common share ($0.02) ($0.08) ========== ========== Weighted average number of common shares outstanding 5,243,750 5,161,750 ========== ==========
See notes to condensed consolidated financial statements. F-3 CREATIVE BAKERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (Unaudited)
1998 1999 Restated ---- -------- Operating activities: Loss from continuing operations ($69,167) ($214,527) Adjustments to reconcile income from continuing operations to cash provided from continuing operations: Depreciation 28,806 33,751 Amortization 20,228 20,223 Gain on sale of marketable securities (3,216) Changes in other operating assets and liabilities from continuing operations: Accounts receivable (38,233) 38,110 Inventory (31,533) 72,012 Prepaid expenses and other current assets (1,055) 10,650 Security deposits (22,989) Accounts payable (9,998) 10,013 Accrued expenses and other current liabilities 148,386 (260,300) Deferred rent (3,421) (9,259) -------- -------- Net cash provided by (used in) operating activities 40,797 (322,316) Net cash provided by (used in) discontinued operations (187,882) 160,283 -------- -------- Net cash used in operating activities (147,085) (162,033) -------- -------- Investing activities: Proceeds from sale of marketable securities 4,533 Purchase of property and equipment (7,170) -------- Net cash used in investing activities (2,637) -------- Financing activities: Proceeds from issuance of common stock and warrants 187,500 Payment of debt (11,440) (18,922) -------- -------- Net cash provided by (used in) financing activities 176,060 (18,922) -------- -------- Net increase (decrease) in cash and cash equivalents 26,338 (180,955) Cash and cash equivalents, beginning of period 129,626 479,312 -------- -------- Cash and cash equivalents, end of period $155,964 $298,357 ======== ======== Supplemental disclosures: Cash paid during the period: Interest paid during the period Continuing operations $ 2,207 $ 4,138 ======== ======== Discontinued operations $ 0 $ 0 ======== ========
See notes to condensed consolidated financial statements. F-4 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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 three 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, 1998 included in its Annual Report filed on Form 10-KSB. 2. Principles of consolidation: The consolidated financial statements of Creative Bakeries, Inc. and subsidiaries include the accounts of all significant wholly owned subsidiaries, after elimination of all significant intercompany transactions and accounts. The accounts of J.M. Specialties, Inc. and WGJ Desserts and Cafes, Inc. are included as the subsidiaries of Creative Bakeries, Inc. Financial statements have been restated as of March 31, 1998 to reflect the discontinuation of the operations of WGJ Desserts, Inc. (see Note 15) 3. Acquisition of J.M. Specialties, Inc.: On January 23, 1997, the Company purchased 100% of the outstanding common stock of J.M. Specialties, Inc. ("JMS") in a transaction to be accounted for as a purchase (the "Acquisition"). The purchase price of $2,160,000 consisted of (i) $900,000 in cash, (ii) 500,000 shares of the Company's common stock valued at fair market value of $1.75 per share (aggregating $875,000), and (iii) 350,000 purchase warrants valued at fair value of $1.10 per warrant (aggregating $385,000) to acquire 350,000 shares of the Company's common stock at $2.50 per share. The warrants are in the same form as those described below. JMS, which was founded in 1984, offers a line of both batter and frozen finished cakes, brownies and muffins - with muffins constituting approximately 90% of sales. These products are produced in batches using partially automated equipment at its facility in Parsippany, New Jersey. The product is sold to wholesale customers as well as supermarket distribution centers and is marketed primarily through food distribution companies in New Jersey and New York. In turn, according to JMS's management, the distributor sells approximately forty percent of the product to supermarkets and sixty percent to food service customers, such as hospitals, colleges, restaurants and corporate dining rooms. In connection with the Acquisition, the Company entered into an employment agreement with the selling shareholder pursuant to which he will serve as a director and chief executive officer of the Company at an annual salary level of $250,000 for 1997 and a minimum of $150,000 thereafter. In addition, the Company agreed to provide $600,000 to JMS for working capital. F-5 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3. Acquisition of J.M. Specialties, Inc. (continued): In connection with the acquisition, the Company transferred all of its then owned business assets to a newly formed wholly-owned subsidiary in exchange for all of the issued and outstanding shares if common stock of WGJ Desserts and Cafes, Inc. As a result, the Company currently acts as a holding company with two wholly-owned subsidiaries, JMS and WGJ. Upon obtaining the Company's stockholders, the Company changed its name to Creative Bakeries, Inc. In order to finance the Acquisition, the Company sold in a private placement 1,875,500 common stock purchase warrants ("the Placement Warrants") at a net price to the Company (after expenses of $315,000) of $1,747,500. Each Placement Warrant entitles the holder thereof to purchase one common share, par value $.001 per share, of the common stock of the Company at an exercise price per share of $2.50 for a term which will expire on December 31, 2000. The Company has the right to redeem the Placement Warrants, in installments, at a redemption price of $.10 per warrant commencing six months after the date of issuance if the stock trades at a designated level for a least five trading days prior to the month preceding the date on which the redemption right may be exercised. The holders of the Placement Warrants have a put option pursuant to which for a 60 day period prior to their expiration date, the holder has the right to require the Company to repurchase the Placement Warrants for a consideration consisting of $.10 per warrant plus 40% of a share of common stock. In addition, the Placement Warrants have standard anti-dilution protection. The assets acquired and the liabilities assumed at December 31, 1996, in connection with the Acquisition, are as follows: Assets: Cash $ 84,129 Accounts receivable 224,378 Notes receivable 60,000 Inventories 274,803 Prepaid expenses 14,063 Property and equipment 483,608 Other assets 27,999 -------- $1,168,980 Liabilities: Long-term debt 23,607 Notes payable - bank 75,000 Accounts payable and accrued expenses 123,938 -------- 222,545 ---------- Excess of net assets acquired over liabilities assumed 946,435 Goodwill 1,213,565 ---------- $2,160,000 ==========
F-6 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3. Acquisition of J.M. Specialties, Inc. (continued): Under the terms of its agreement with InterEquity Capital Partners, L.P., the Company reserved 185,682 shares of its common stock for issuance under the warrant. Management ascribed a fair value of $1.10 per common share. 4. Acquisition of Chatterly Elegant Desserts, Inc.: On September 1, 1997, the Company acquired 100% of the outstanding common shares of Chatterly Elegant Desserts, Inc. (Chatterly) in a transaction to be accounted for as a pooling of interest. The Company issued 1,300,000 of its common shares pursuant to the acquisition, of which 200,000 shares were returned to the Company on March 10, 1998 when the seller's sales agreement was amended. Chatterly, which was founded in 1985, produces a line of cakes, tortes and other dessert items which are made in its facility in Fairfield, New Jersey. The products are sold to wholesale customers as well as supermarkets and other food distributors in New Jersey and New York. In connection with the acquisition of Chatterly Elegant Desserts, Inc., the Company entered into an agreement with the selling shareholder for a two year period commencing September 1, 1997. The agreement calls for an annual salary of $100,000 to be paid to such shareholder. The assets acquired and the liabilities assumed at December 31, 1996, in connection with the acquisition of Chatterly, are as follows: Assets: Accounts receivable $124,950 Inventories 128,576 Prepaid expenses 4,713 Property and equipment 422,493 Other assets 56,700 -------- $737,432 Liabilities: Long-term debt 111,034 Notes payable, others 47,320 Accounts payable and accrued expenses 421,960 Deferred rent 136,958 -------- 717,272 -------- Excess of net assets acquired over liabilities assumed $ 20,160 ========
F-7 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5. Property and equipment: The following is a summary of property and equipment at March 31, 1999: Baking equipment $1,427,719 Furniture and fixtures 76,813 Leasehold improvements 180,422 ---------- 1,684,954 Less: Accumulated depreciation and amortization 984,376 ---------- $ 700,578 ==========
6. Intangible assets: The excess cost over the fair value of the net assets acquired from J.M. Specialties, Inc. aggregated $1,213,545. This goodwill has been amortized over its estimated useful life of fifteen years. Amortization charged to operations amounted to $20,228 in 1999 and 1998. 7. Deferred rent: The accompanying financial statements reflect rent expense on a straight-line basis over the life of the lease. Rent expense charged to operations differs with the cash payments required under the terms of the real property operating leases because of scheduled rent payment increases throughout the term of the leases. The deferred rent liability is the result of recognizing rental expense as required by generally accepted accounting principles. 8. Common stock: In January 1999, the Company issued 150,000 of its common stock at $1.25 for total proceeds of $187,500. In January 1999, the Company issued 40,000 of its common shares in lieu of payment of a note amounting to $100,000 held by a former shareholder. F-8 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 9. Commitments and contingencies: Employment agreements: In conjunction with the purchase of Chatterly Elegant Desserts, Inc., The Company entered into an employment agreement with a former employee of Chatterly. The agreement covers a three year period commencing upon the transfer of the Company's shares to the seller of Chatterly on September 1, 1997. In the first year of the contract the employee is to receive warrants to purchase 20,000 shares of the Company's common stock at $2.50 per share. In the second two years of the agreement, the employee is to receive an annual salary of $150,000 per year. The Company has not recognized compensation on the granting of warrants to this employee since the fair value of the warrants is less than the exercise price. As of February 1998, this employee resigned and the employment agreement, according to management, has been terminated. This debt was settled in January of 1999 with the issuance of 40,000 of the Company's shares in complete satisfaction of the amount due of $100,000. Litigation matters: The Company and its subsidiary, WGJ Desserts, Inc., have been named as defendants in an action entitled Bacal v Creative Bakeries, Inc. which was filed in the Supreme Court of the State of New York for the County of New York. The complaint in the action alleges that defendants Edmund Abramson, currently a director of the Company and Willa Abramson, who resigned as a director in 1996, allegedly acting on behalf of the Company and Greenberg, entered into an agreement with plaintiff, Murray Bacal, whereby Mr. Bacal would purchase warrants for common stock of the Company and that the Abramson's agreed to repurchase the warrants for the same price at which they were originally sold to him, plus out of pocket expenses. As a consequence, the complaint seeks $131,500 in compensatory damages and $1,000,000 in punitive damages. On December 14, 1998, the Company moved by order to show cause to dismiss the complaint in its entirety as against the Company based on the fact that the action involves a private transaction between the plaintiff and the Abramson's, and the complaint fails to state a cause of action against Creative Bakeries, Inc. After a full briefing and oral argument, the papers were taken by the court on submission and the Company is awaiting a ruling on that motion. The Company has also been named as a defendant in an action entitled Ackerman v Alan Sloan, an adversary proceeding brought in the United States Bankruptcy Court by the Chapter 7 trustee of Alliotto Bakery Cafe, Inc. The complaint alleges that the Company, while operating as William Greenberg, Jr. Desserts and Cafes, Inc. used customer lists and property of the Chapter 7 debtor for a period of several weeks sometime after June 1998 without having paid fair value or consideration. While the Company does not believe it committed any actionable conduct, the Company does not believe the claim is material because it is believed to involve a potential exposure of only several thousand dollars. The Company has not yet filed a formal response to the claim. F-9 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 10. Long-term debt: Equipment with a cost of $197,000 has been pledged as collateral on a note payable in monthly installments of $2,909, including interest. The notes carry interest varying rates of 10.30% to 17.87% and mature between 1998 and 2000. The total future annual payments as of March 31, 1999 are as follows: March 31, 2000 $27,299 =======
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 2,485,000 in 1999 and 1998. Reconciliation of shares used in computation of earnings per share:
1999 1998 ---- ---- Weighted average of shares actually outstanding 5,243,750 5,161,750 Common stock purchase warrants --------- --------- Primary and fully diluted weighted average common shares outstanding 5,243,750 5,161,750 ========= =========
12. Inventories: Inventories consist of the following: Raw materials $ 93,494 Finished goods 74,795 Packaging supplies, labels, etc. 98,836 -------- $267,125 ========
F-10 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 13. Supplemental schedule of non-cash investing and financing activities:
1999 1998 ---- ---- Common shares issued in consideration of legal, consulting fees and other obligations $100,000 -------- -------- $100,000 $ 0 ======== ========
14. Note receivable: 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: March 31, 2000 $ 73,750 March 31, 2001 73,750 March 31, 2002 73,750 March 31, 2003 73,750 -------- $295,000 ========
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. 15. 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. F-11 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 15. Discontinued operations (continued): The sale of the final retail location resulted in a selling price of $405,000 which includes a note receivable of $295,000. The sale resulted in a gain of $321,350. Net liabilities, less assets to be disposed of, of WGJ Desserts, Inc. consisted of the following as of March 31, 1999: Accounts payable $394,785 Accrued payroll 303,084 Accrued expenses 222,775 Deferred rent 42,652 -------- 963,296 -------- Cash 45,556 Notes receivable 299,000 Interest receivable 9,271 Property and equipment 35,000 Covenant not to compete 31,250 Security deposits 24,498 -------- 444,575 -------- $518,721 ========
Information relating to discontinued operations for WGJ Desserts and Cafes, Inc. for the three months ended March 31, 1999 and 1998 is as follows:
1999 1998 ---- ---- Net sales $366,041 Cost of sales 163,270 -------- Gross profit 202,771 Operating expenses $35,360 272,317 ------- -------- Loss from operations (35,360) (69,546) Loss on abandonment of leasehold improvements 143,173 Interest income 5,638 -------- -------- Net loss from discontinued operations ($29,722) ($212,719) ======== ========
F-12 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 16. Other matters: The year 2000 issue relates to the inability of many electronic data processing (EDP) systems to accurately process year-date data beyond the year 1999. Unless year 2000 problems are remedied, significant problems relating to the integrity of all electronically processed information based on time will occur. Additionally, there are many other operational issues that need to be assessed, such as computer-run maintenance systems, as well as systems that may be indirectly controlled by computer by way of a chip embedded in their designs. The effect, if any, at this time about the problems that could occur and the costs to remedy can not be determined. F-13 Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operation General: In order to concentrate on the wholesale end, the company has been downsizing its retail operations since 1997. Four stores were shut down as of December 1997. In March '98 the Company closed its operations at the Macy's location. In June '98 the Company closed its commissary at 47th street after entering into a co-packing arrangement with JMJ Baking Corp. In early November 1998 the Company sold its only remaining retail store on Madison Ave., thus completing its exit from direct involvement in retailing. The buyer has purchased: 1. The Madison Avenue Store 2. The license to open additional stores on which the Company will get royalty and 3. A 50% stake in the wholesale and mail order business. At March 31, 1999 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 $7,100,000 which can be used to reduce the tax on income up to that amount through the year 2011. b. Results of Operations (continuing ) for three months ending March 31, 1999 vs. three months ended March 31, 1998: The Company's consolidated revenues aggregated $907,435 vs. $1,003,761. The cost of goods sold was $718,714 vs. $851,384. Operating expenses were $297,106 vs. $358,064. As a result, the loss from operations for the first quarter 1999 and 1998 was $108,385 and $205,687 respectively. The reduction in sales was mainly due to the retrenchment in the retail division. The related much steeper reduction in operating expenses was due to the restructuring at the WGJ Subsidiary with the resultant cost savings. The net interest expense for the quarter was $2,207. The resulting net loss aggregated $69,167 for 1999 ($.01) per share and $214,527 for 1998 ($.04) per share. Net loss from discontinued operations was 29,722 for 1999 ($0.01) per share vs. 212,719 for 1998 ($0.04) 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 March 31, 1999 and 1998. c. Plan of Operation: Exit from Retail Operations: After analyzing the Company's retail operations, management concluded that the unprofitable retail division was diverting management's attention away from pursuing profitable opportunities in the Company's other division. Therefore, by December 31, 1997, the company closed down four of its six stores. A fifth store, in Macy's cellar was taken over by Ferrara Bakery from April 1, 1998. The commissary was closed down on June 30, 1998 and the last remaining store on Madison Avenue was sold in early November, 1998. The Company retains a 50% stake in the Wholesale and Mail Order Business which it will develop jointly with the new owners. Since there was no justification to maintain the commissary, the Company entered into a co-packing arrangement with JMJ Baking Corp. to supply the product at the same high quality standard. In order to assure the quality, JMJ has employed Greenberg's bakers and has agreed to use only Greenberg's recipes. In connection with the restructuring plan, management has written down property & equipment as of March 31, 1999 to approximately $35,000. The Company had charged 1996 with a $450,000 provision for actions aimed at restructuring the Company, of which $369,459 was actually incurred as of March 31, 1999. This charge mainly comprises write down of leasehold improvements on stores that have been closed down, provisions for lease obligations on certain retail stores, and charges for consultants involved in the restructuring. By taking the above actions, future periods will not be burdened with the amortization, depreciation or expense of these costs. We took a step back at the retail end in order to move forward. We are now at a point where we have minimized the losses and are pursuing ways of growing the business profitably. Wholesale Operations: The next phase in the company's plan of action is to build up the wholesale end of its business with fewer but profitable products. This process includes the following: Calling on supermarket headquarters and chain restaurant accounts. Brokers have been appointed and sales calls and visits are being made. Continue to expand the fat free product line targeting existing as well as new customers and 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 $8,642,500 received from the issuance of its securities. In June 1995, the Company issued 180,000 shares of common stock to unrelated parties for $600,000 and in August 1995, the Company issued 60,000 shares of its common stock to unrelated parties for $200,000. In connection with the acquisition of Greenberg's- L.P., the Company received $2,000,000 from the sale of two notes to InterEquity Capital Partners, L.P. ("InterEquity"). During October 1995, the Company received net proceeds of $4,900,000 from the sale of 1,150,000 shares of its common stock in an initial public offering. During January 1997 the Company received net proceeds of $1,747,500 from the private placement of 1,875,500 common stock purchase warrants at $1.10 per warrant. During October 1997 the Company received net proceeds of $883,000 from the exercise of a portion of these common stock warrants. During January 1999, the Company received a further $187,500 from the exercise of another 150,000 of these warrants. Of the $5,700,000 proceeds from the aforementioned stock sales: (i) $2,125,000 was issued to repay the InterEquity debt including interest; (ii) $2,615,000 was used in operations; (iii) $765,000 was used to purchase property, equipment and leaseholds; and (iv) $195,000 was used for general corporate purposes. The $1,650,000 proceeds from the private placement warrants was used to acquire JMS. Of the $1,071,000 proceeds from the exercise of warrants $325,000 was used for consolidation and merger of JMS and Chatterley and the balance is being used for corporate purposes and to fund new business. As of March 31, 1999, the Company (continuing operations) has a negative working capital of approximately $319,298 as compared to a negative working capital of $1,306,004 at March 31, 1998. During 1997 and 1998 Management took actions aimed at restructuring the Company in order to reduce operating costs and enhance the Company's focus and efficiency. Pursuant to the restructuring a new management team was put into place, executive contracts and leases were renegotiated and certain positions were eliminated and an exit strategy out of retailing was completed. As a result of the new strategy and concentration on growing Batter Bake-Chatterley, revenues have been increased. The Company has secured approximately $1,000,000.00 in new annualized business and estimates an additional $800,000 in annualized sales starting in June 1999. As announced the company is negotiating a merger with Paramark Corporation. 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 May 20, 1999. CREATIVE BAKERIES, INC. By: /s/ Philip Grabow -------------------------- Philip Grabow 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 20, 1999.
Signatures Title - ---------- ----- President, Chief Executive /s/ Philip Grabow Officer/Director - ---------------------- Philip Grabow Chief Financial Officer /s/ Ashwin R. Shah (Principal Accounting Officer) - ---------------------- Ashwin R. Shah Director - ---------------------- Richard Fector /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
27 EX-21 2 EXHIBIT 21.1 Exhibit 21.1 LIST OF SUBSIDIARIES --------------------
NAME STATE OF INCORPORATION - ---- ---------------------- WGJ Deserts and Cafes, Inc. New York Batter-Bake Chatterley Inc. New Jersey
EX-27 3 EXHIBIT 27
5 3-MOS DEC-31-1999 MAR-31-1999 155,964 0 300,709 0 267,125 795,352 700,578 0 2,452,019 1,114,650 0 5,292 0 0 0 2,452,019 907,435 0 718,714 1,015,820 0 0 2,207 (98,889) 0 (69,167) (29,222) 0 0 (98,889) 0.02 0
-----END PRIVACY-ENHANCED MESSAGE-----