-----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, QRuXpzLrJM3bcERQXtrIE60Tb20HocT1Xri/0S5hpBURFqCzuiLXpV0ViL29z+dC Hh0IjjXYv6/fS88e4KXv7g== 0001144204-05-011665.txt : 20050415 0001144204-05-011665.hdr.sgml : 20050415 20050415142923 ACCESSION NUMBER: 0001144204-05-011665 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050415 DATE AS OF CHANGE: 20050415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Brooklyn Cheesecake & Desert Com 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: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-13984 FILM NUMBER: 05753269 BUSINESS ADDRESS: STREET 1: 20 PASSAIC AVE CITY: FAIRFIELD STATE: NJ ZIP: 07004 BUSINESS PHONE: 9738088248 MAIL ADDRESS: STREET 1: 20 PASSAIC AVE CITY: FAIRFIELD STATE: NJ ZIP: 07004 FORMER COMPANY: FORMER CONFORMED NAME: CREATIVE BAKERIES INC DATE OF NAME CHANGE: 19970812 FORMER COMPANY: FORMER CONFORMED NAME: WILLIAM GREENBERG JR DESSERTS & CAFES INC DATE OF NAME CHANGE: 19950918 10KSB 1 v016391_10-ksb.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the fiscal year ended: December 31, 2004 Commission File Number: 0-13984 BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. (Formerly Creative Bakeries, Inc.) (Name of Small Business Issuer in Its Charter) New York 13-3832215 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 20 Passaic Avenue, Fairfield, NJ 07004 -------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) Issuer's telephone number: (973) 808-8248 Securities registered under Section 12(b) of the Exchange Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- Common Stock, $.001 per share OTCBB Securities registered under Section 12 (g) of the Exchange Act: None 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__ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] Issuer's revenue for its most recent fiscal year was $3,035,323. As of December 31, 2004 there were 8,495,296 shares of Company's Common Stock, par value $.001 per share, outstanding. The aggregate market value of the voting stock of the issuer held by non-affiliates on December 31, 2004 was approximately $466,147. Transitional Small Business Disclosure Format (check one):Yes __No _X_ 1 BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. (FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES) FORM 10-KSB YEAR ENDED DECEMBER 31, 2004 TABLE OF CONTENTS PART I Page Item 1. Description of Business 3 Item 2. Description of Property 5 Item 3. Legal Proceedings 5 Item 4. Submission of Matters to a Vote of Security Holders 5 PART II Item 5. Market for Common Equity and Related Stockholder Matters 5 Item 6. Management's Discussion and Analysis of Financial Condition and Plan of Operations 6 Item 7. Financial Statements 13 Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 32 Item 8A. Controls and Procedures 32 Item 8B. Other Information 33 PART III Item 9. Directors and Executive Officers of the Registrant 33 Item 10. Executive Compensation 34 Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 35 Item 12. Certain Relationships and Related Transactions 35 Item 13. Exhibits 36 Item 14. Principal Accountant Fees and Services 40 SIGNATURES 41 2 PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL Brooklyn Cheesecake & Desserts Company, Inc. ("Brooklyn Cheesecake" or the "Company"), offers a high-end gourmet line of premium quality frozen cheesecakes, sugar free cheesecakes, traditional apple cakes, and tart shells. The products are marketed and distributed on a wholesale basis through foodservice distributors, export, fund raising distributors and e-commerce. Brooklyn Cheesecake & Desserts Company, Inc. was incorporated in November 1993. The Company's executive offices are located at 20 Passaic Avenue, Fairfield, NJ 07004 and its telephone number is (973) 808-8248. The Company's operates through its wholly owned subsidiary Brooklyn Cheesecake & Desserts Company. PRODUCTS Baked Goods The Brooklyn Cheesecake & Desserts Company Subsidiary markets a full line of premium quality frozen baked products such as cheesecakes, apple cakes and tart shells. We continue to work toward developing new products and seek to cater to specific customer requests. Kosher Foods Kosher foods generally are consumed by persons of the Jewish faith as well as Muslims, Seven Day Adventists and others who perceive kosher certification as a seal of purity. Kosher is a biblical term originally used to denote that which is "fit" and "proper". Our wholly owned subsidiary Brooklyn Cheesecake & Desserts Company has kosher certification and we believe that we can capitalize on the projected growth of this market. We believe that our kosher certifications will enable us to better penetrate certain market areas despite the fact that our products are currently not kosher for Passover. CUSTOMERS Our operating subsidiary sells its products through food distributors to hotels, hospitals and institutional feeders such as corporate caters, restaurants, coffee shops etc. The products are also sold retail through food distributors and direct to supermarket distribution centers as well as exported to Japan and sold through high-end school and organization fundraiser distributors. We accounted for sales from one customer of 26% of our total sales for the year ended December 31, 2004. For the year ended December 31, 2003 sales to two customers accounted for 16% and 17% of total sales. INGREDIENTS AND PRINCIPAL SUPPLIERS We seek to use only the highest quality ingredients available. We inspect all raw ingredients before their intended use. The primary ingredients that we use consist of cream cheese, flour, eggs, sugar, and chocolate. All ingredients that we use are subject to substantial price fluctuations. Historically we have been able to pass any significant price increases in ingredients through to our customers however, no assurance can be given that we will be able to continue this practice in the future. Any substantial increase in the prices of ingredients could, if not offset by a corresponding increase in product prices, have a material adverse effect on our business, financial condition or results of operations. We do not believe the loss of any of our suppliers would have a material adverse effect on our business and believe that other suppliers could readily provide such products if necessary. 3 DISTRIBUTION AND MARKETING Our Brooklyn Cheesecake & Desserts subsidiary bakes all of its products in our Fairfield, New Jersey facility. Although utilization of the facility varies based on seasonal fluctuation, the facility operates on a five day a week basis. We believe that the Brooklyn Cheesecake & Desserts Company subsidiary has the capacity to meet future requirements. Our Brooklyn Cheesecake & Desserts Company subsidiary delivers 31% of its products by common carrier trucks to its institutional/wholesale customers. About 69% of its customers pick up their orders directly at our bakery and utilize their own distribution networks. Historically, we have relied upon word-of-mouth and customer satisfaction to market our products to new customers and to make existing customers aware of new products. COMPETITION The baking industry is a highly competitive and highly fragmented industry. We compete with national, regional and local bakeries as well as supermarket chains that have in-store bakeries. Many of these competitors are larger, more established and have greater financial and other resources. Competition in both the retail and institutional/wholesale baking industry is based on product quality, brand name loyalty, price and customer service. TRADEMARKS Our JMS subsidiary has a trademark and design registered with the United States Patent and Trademark office for the mark The Healthy Bakery(R) (US Registration No. 1,644,559) and has a pending application for the marks Brooklyn Cheesecake Company Inc.(Serial # 78/324,044) and Brooklyn Cheesecakes & Desserts Company, Inc. (Serial # 78/324,035). While the Company believes that the trademarks are valid and enforceable, there can be no assurance as to the degree of protection its registered trademarks will afford the Company. PLAN OF OPERATION Future mergers and acquisitions: The Company continues to seek business in markets it does not currently serve and is continuing to pursue mergers and acquisition opportunities. GOVERNMENT REGULATION We are subject to numerous state regulations relating to the preparation and sale of food. We are also subject to federal and state laws governing our relationship with employees, including minimum wage requirements, overtime, working and safety conditions, and citizenship requirements. The failure to obtain or retain required food licenses or to be in compliance with applicable governmental regulations, or any increase in the minimum wage rate, employee benefits costs (including costs associated with mandated health insurance coverage) or other costs associated with employees, could adversely affect our business, results of operations or financial condition. EMPLOYEES As of December 31, 2004, Brooklyn Cheesecake & Desserts Company had approximately 34 employees, of which 20 are full-time production, 10 are seasonal production, and 3 in administration and 1 in an executive position. The Brooklyn Cheesecake & Desserts Company Subsidiary does not have a union and the Company believes that the relationship with its employees is good. 4 ITEM 2. DESCRIPTION OF PROPERTY We currently lease our 27,362 square foot baking facility and corporate headquarters in Fairfield, New Jersey. We have a lease that extends through August 31, 2008. We believe that our present facility is well maintained, in good condition and is suitable for us to continue to operate and meet our production needs for the foreseeable future. ITEM 3. LEGAL PROCEEDING None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is quoted on the Over the Counter Bulletin Board ("OTCBB") under the symbol "BCAK" effective February 23, 2005. Prior to that, the Company's Common Stock was quoted on the OTCBB under the symbol "CBAK". The following table sets forth the range of quarterly high and low bid prices, as reported during the last two fiscal years. Period High Low - ------------------------------------------ FISCAL YEAR 2003: First Quarter .15 .04 Second Quarter .12 .10 Third Quarter .10 .04 Fourth Quarter .12 .06 Fiscal Year 2004: First Quarter 1.02 .07 Second Quarter .50 .14 Third Quarter .35 .12 Fourth Quarter .12 .06 The number of shareholders of record of the Common Stock on December 31, 2004 was 55 excluding 2,579,578 shares of Common Stock held by Cede & Co. The Company believes that it has in excess of 200 shareholders. The Company has never paid cash dividends on its Common Stock and does not anticipate paying dividends in the foreseeable future. The payment of future cash dividends is subject to the discretion of the Board of Directors and will depend upon the Company's earnings (if any), general financial condition, cash flows, capital requirements and other considerations deemed relevant by the Board of Directors. 5 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS GENERAL - Recent Developments Management has streamlined the company's product line to focus on the production of cheesecake, tart shells and apple cakes. The margins and markets for the three categories preserved offer the greatest earnings potential. Branding opportunities for cheesecake packaged under the Brooklyn Cheesecake & Desserts Company label continue to be expanded. A commercial grade web site is in the process of being developed. The site is anticipated to be launched by the end of April 2005. Target audiences include both individual and corporate gift givers. Private label opportunities have also been expanded for both cheesecake and tart shells. Distribution of cheesecake in Japan has been increasing at a steady level. Management will continue to refine operations and reduce costs. The Company has been approved for a grant from the State of New Jersey to obtain ISO 9000 certification. This is a quality management program, which is certified by third party auditing. This certification is international recognized As of December 31, 2004, and to the extent the Company may have taxable income in future periods; there is an available net operating loss for federal income tax purposes of approximately $8,886,000, which can be used to reduce the tax on income up to that amount through the year 2024. BUSINESS STRATEGY The Company's business strategy is comprised of the following: Institutional/Wholesale: The Company plans to increase its penetration in the institutional/wholesale food market by expanding its marketing efforts to restaurants, hotels and corporate dining facilities and by offering its products to supermarkets on a national basis. The Company plans to expand both its product line and geographic distribution through the following strategies: - Expand geographic distribution by acquiring new food distributors in the state of Connecticut and in the Philadelphia Pennsylvania areas as well as key distributor areas throughout the United States. To do this, the Company intends to appoint food brokers in various states to handle sales on a commission-only basis. - Develop Web Site for E-Commerce business - Obtain ISO 9000 Certification - Enter into co-packing arrangements whereby the Company would produce private label products for other bakery operations. Kosher Foods. The Company also is seeking to benefit from the growth of the kosher food industry. According to prepared foods, the food industry trade publication, the kosher food industry generated approximately $33 billion in sales in 1994 and has been growing at a rate of approximately 15% per annum. The Company's Brooklyn Cheesecake & Desserts Subsidiary has a kosher certification and the Company believes that it can benefit from the projected growth of this market. 6 BUSINESS PHILOSOPHY High Quality Ingredients. The Company believes that developing and maintaining premium quality products is the key to its future success. The Company uses the highest quality ingredients in its products including, cream cheese, whole eggs, premium fruits, nuts, and chocolates blended for the Company's unique recipes. The Company seeks to maintain rigorous standards for freshness, quality, and consistency. Customer Service. The Company depends on and enjoys a high rate of repeat business. The Company believes that the quality of the relationship between its employees and its customers is critical to its success. The Company strives to hire and train well-qualified, highly motivated employees committed to providing superior levels of customer service. RESULTS OF OPERATIONS The Company's consolidated revenues from continuing operations aggregated $3,035,323 and $3,369,742 for the years-ended December 31, 2004 and 2003 respectively, a decrease of $334,419, or 9.9%. This is in comparison to an increase of $51,654, or 1.6%, to $3,369,742 from $3,318,088 for the years-ended December 31, 2003 and 2002 respectively. The decrease in 2004 is a result of raising prices for which customers either changed vendors of discontinued items. The increase in 2003 is due to the increase in cheesecake sales. The cost of goods sold were $2,555,536 and $2,904,140 for the years-ended December 31, 2004 and 2003 respectively, a decrease of $348,604, or 12%; as opposed to an increase of $10,914, or 0.4%, to $2,904,140 from $2,893,226 for the years-ended December 31, 2003 and 2002 respectively. The decrease in 2004 was due to the decrease in sales. Cost of goods sold increased in 2003, due to an increase in sales. Selling, general and administrative expenses were $963,669 and $784,253 for the years-ended December 31, 2004 and 2003 respectively, an increase of $179,416, or 22.9%. This is in comparison to an increase of $147,951, or 23.3%, to $784,253 from $636,302 for the year-ended December 31, 2003 and 2002 respectively. The 2004 increase was a result of management's upgrading of various department personnel. The increase in 2003 was due in part to additional legal fees. In 2003, the Company had a cancellation of debt, which was a result of renegotiating its current warehouse lease. The write-off was for an accumulated rent straight-lining liability of $57,978. There was no cancellation of debt in 2004. During 2004 the Company wrote-off the $42,981, balance of trade name rights after selling such rights for $25,000. Additionally, the Company sold fully depreciated equipment for $10,000. There were no similar transactions in 2003. Interest expense increased in 2004 to $96,213 from $20,206, an increase of $76,007, or 376.2%, in comparison to an increase in 2003 to $20,206 from $2,055, an increase of $18,151, or 883%. The 2004 and 2003 increases were a result of increased borrowing. Other income of $13,752 is the final payment of royalties from the sale of the batterbake line. There was no similar transaction in 2003. The loss from continuing operations increased in 2004 to $574,324 from $280,879, an increase of $293,445, or 104.5%. This is in comparison to an increase in 2003 to $280,879 from $213,945 in 2002, an increase of $66,934, or 31.3%. Income from discontinued operations was $134,265 for the ended December 31, 2003. This income was a result of the write off of old accounts payable related to the WGJ Desserts operation sold in 1998. Management wrote-off the payables since the statute of limitations had expired. The aggregate of these adjustments amounted to a net loss in 2004 of $574,324 and net loss in 2003 of $146,614, a decrease in income of $427,710, or 291.72%. This is in comparison to a net loss in 2003 of $146,614 and net income in 2002 of $166,227, a decrease in income of $312,841, or 188%. 7 SEGMENT INFORMATION Not applicable since retail operations were discontinued. LIQUIDITY AND CAPITAL RESOURCES 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 December 31, 2004, the Company had a negative working capital of $659,923 as compared to a negative working capital of $493,733 at December 31,2003. During 2004, the Company was able to secure a $317,000 loan from the chairman of the Board of Directors. Additionally, the Company received loans from the chairman and another director totaling $104,000 (see Certain Relationships and Related Transactions). The proceeds of the loans were used to acquire equipment and for working capital. 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. INFLATION AND SEASONALITY: The Company's revenues are affected by seasons with higher revenues during holiday seasons such as Thanksgiving, Christmas, Jewish New Year, Easter and Passover. RISK FACTORS The Follot 6 0 wing information sets forth facts that could cause our actual results to differ materially from those contained in forward looking statements we have made in this annual report and those we may make from time to time. If We Are Unable to Obtain Additional Funds, We May Have to Significantly Curtail the Scope of Our Operations and Alter Our Business Model. Management believes that profitable operations are essential for the Company to become viable. The present business plan contemplates profitable operations will be achieved. However, in the event that profitable operations are not achieved, our present financial resources should allow us to continue operations through June 30, 2005. If additional financing is required and not available when required or is not available on acceptable terms, we may be unable to continue our operations at current levels or at all. We are engaged in seeking additional financing and we continue to impose actions designed to minimize our operating loses. We would consider strategic opportunities, including investment in the Company, a merger or other acceptable transactions, to sustain our operations. We do not currently have any agreements in place with respect to any such strategic opportunity, and there can be no assurances that additional capital will be available to us on acceptable terms, or at all. If we are unable to obtain additional financing or to arrange a suitable strategic opportunity, our business will be placed in significant financial jeopardy. Our Independent Auditors have Stated that Our Recurring Losses from Operations and Our Accumulated Deficit Raise Substantial Doubt About Our Ability to Continue as a Going Concern. 8 The reports of our independent Certified Public Accountants dated March 15, 2005 and March 17, 2004 for the December 31, 2004 and 2003 consolidated financial statements, respectively contained an explanatory paragraph that states that our recurring losses from operations and accumulated deficit raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. We believe we will need to raise more money to finance our operations and sustain our business model. We may not be able to obtain additional financing on acceptable terms, or at all. Any failure to raise additional financing will likely place us in significant financial jeopardy. Our Financial Condition Has Adversely Affected Our Ability to Pay Suppliers on a Timely Basis Which May Jeopardize Our Ability to Continue Our Operations Necessary to Continue Shipment and Sales of Our Products. As of December 31, 2004 our accounts payable totaled $450,981 of which $33,235 were over sixty (60) days old. While we have negotiated payment plans with our major suppliers and vendors, there can be no assurances that we will be able to continue these payment plans or obtain the necessary materials and/or ingredients to produce our baked goods. If we are unable to obtain additional financing on acceptable terms, our ability to make timely payments to our critical suppliers will be jeopardized and we will be unable to obtain critical supplies and services to maintain and continue to manufacture, ship and to sell our products. The Company And the Price Of Our Shares May Be Adversely Affected By the Public Sale of a Significant Number of the Shares Eligible For Future Sale. All but a very small number of the outstanding shares of our Common Stock are freely tradable. Sales of Common Stock in the public market could materially adversely affect the market price of our Common Stock. Such sales may also inhibit our ability to obtain future equity or equity-related financing on acceptable terms. At our Annual Meeting of Stockholders held August 4, 2004 our stockholders approved an increase in the number of authorized shares of Common Stock from 10,000,000 shares to 30,000,000 shares. The issuance and registration of additional shares could have a significant adverse effect on the trading price of our Common Stock. We Have Obtained Secured Financing With the Pledge of All of Our Assets Which Will Have Priority Over Security Interests of Any Holders of Our Preferred Shares. We have previously procured interim financing to continue our operations at arms length transaction from the following directors: Ronald L Schutte, the Chief Executive Officer and Chairman of the Board, in the amount of $633,560 and Anthony J. Merante, Director of the Company, in the amount of $85,931. A $317,000 note to Mr. Schutte is secured by all the assets. In the event of default, the directors will obtain, in addition to other remedies, the right to all of our assets as well as the right to appoint qualified members to our Board of Directors that would constitute a majority. We Have Incurred Losses in the Past and We Expect To Incur Losses in the Future. We have incurred losses in each year since our inception. Our net loss for the year ended December 31, 2004 was $574,324 and our accumulated deficit as of December 31, 2004 was $11,943,294. We expect operating losses to continue through 2005 as we continue our marketing and sales activities and conduct additional development of our products. RISKS RELATED TO THE MARKET FOR OUR COMMON STOCK The Price of Our Common Stock is Subject to Volatility Our Common Stock has traded as low as $.06 per share and as high as $1.02 per share in the twelve (12) month ended December 31, 2004. Our average trading volume is extremely low. As such, a significant sale of our Common Stock may result in a major fluctuation of the market price. Some other factors leading to the volatility include: o Price and volume fluctuation in the stock market at large which do not relate to our operating performance; 9 o Fluctuation in our operating results; o Concerns about our ability to finance our continuing operations; o Financing arrangements which may require the issuance of a significant number of shares in relation to the number shares of our Common Stock currently outstanding; o Fluctuations in market demand and supply of our products. Our Common Stock is Currently Traded on the Over-The-Counter-Bulletin-Board and an Investor's Availability to Trade Our Common Stock May Be Limited by Trading Volume The trading volume in our common shares has been relatively limited. A consistently active trading market for our Common Stock may not continue on the Over-The-Counter-Bulletin-Board. The average trading volume in our Common Stock on the Over-The-Counter-Bulletin-Board for the year ended December 31, 2004 was approximately 4,712 shares. RISKS RELATED TO OUR BUSINESS We are Currently Dependent on a Few Major Customers for a Significant Portion of Our Revenues We currently record sales from approximately 31 customers. One customer and two customers accounted for in excess of 10% of our revenues in the years ended December 31, 2004 and 2003, respectively. We intend to establish long-term relationships with our customers and continue to expand our customer base. While we diligently seek to become less dependent on any one customer, it is likely that certain business. The loss of one or more of these significant customers may result in a material adverse effect on our revenues and our ability to become profitable or our ability to continue our business operations. We Have Limited Ability to Sell and Market Our Products At the current time, we have limited marketing capability as compared with many of our competitors and we do not have a large sales, promotion and marketing budget as we are constrained by our lack of working capital and our ability to raise the necessary cash flow from our business operations to re-invest in our marketing programs. As a result of our limited marketing capabilities, we are forced to rely upon customer referrals and a part-time sales force. Our competitors have direct advertising and sales promotion programs for their products as well as sales and marketing personnel that may have a competitive advantage over us in contacting prospective customers. Our position in the industry is considered minor in comparison to that of our competitors, and while we continue to develop and explore new marketing methods and techniques and programs directed toward foreign customers, our ability to compete at the present time is limited. Our success depends upon the ability to market, penetrate and expand markets and form alliances with distributors. However, there can be no assurances that: o Our direct selling efforts will be effective; o We will obtain an expanded degree of market acceptance; o We will be able to successfully form relationships with distributors to market our products. We Depend Upon the Marketability of Primary Products Frozen cheesecake, pre-portioned desserts and tart shells are our primary products. We may have to cease operations if any of our primary products fails to achieve market acceptance and/or generate significant revenues. Additionally, the marketability of our products is dependent upon customer taste, preference and acceptance, which are variables that may be beyond our ability to control. We May Not Be Able to Successfully Develop and Market New Products That We Plan to Introduce 10 We plan to develop new baked goods for production. There are numerous developmental issues that may preclude the introduction of these products into commercial sale. If we are unable to establish market acceptance for these products, we may have to abandon them or alter our business plan. Such modifications to our business plan will likely delay achievement of milestones related to revenue increases and achievement of profitability. We May Experience Problems in Manufacturing Sufficient Quantities and Commercial Quantities of Our Products We may encounter difficulties in the production of our current and any future products due to such reasons as: o Lack of working capital necessary to gain market acceptance; o Limited equipment and resources to produce product; o Quality control and assurance; o Supplies of ingredients; and o Shortages of qualified personnel. Any of the foregoing or other difficulties would affect our ability to meet increases in demand should our products gain market acceptance. We Claim Certain Proprietary Rights in Connection with the Combination of Ingredients and Manufacture of Our Products Although we do not possess any patent protection for the formulation and production of our products, we believe that the combination of ingredients and our method of production are unique and important to our ability to produce quality baked goods and desserts. As we do not possess intellectual property protection, there is the risk that we may not be able to prevent a competitor from duplicating our recipes or our methods of production. We Use Certain Names that Do Not Have Protection under Federal or State Trademark Laws. Our use of the names, "Brooklyn Cheesecake & Desserts Company, Inc.," "Brooklyn Cheesecake Company, Inc." and "Brooklyn Cheesecake & Desserts Company," under which Brooklyn Cheesecake & Desserts Company, Inc. conducts business and has established goodwill may be subject to legal challenge since there are other businesses operating under similar names and we have not registered trademarks for these names with either federal or state agencies. In addition, we utilize packaging with depictions of the Brooklyn Bridge in designed or stylized formats in conjunction with the names, "Brooklyn Cheesecake Company, Inc." and "Brooklyn Cheesecake & Deserts Company," which have not been registered with either federal or state agencies. In that we do not possess registered trademarks for our trade names or trade dress, we may face opposition to our usage of same that may require us to discontinue usage of certain trade names or packaging, which in turn will require us to re-establish goodwill associated with our product names and packaging. We are seeking trademark registrations with the United States Patent and Trademark Office but there can be no assurances that we will be successful in obtaining a registered mark. Attraction and Retention of Key Personnel Our future success depends in significant part on the continued services of key sales and senior management personnel. The loss of Ronald L. Schutte, our Chairman and Chief Executive Officer, or other key employees could have a material adverse affect on our business, results of operations and financial condition. There can be no assurances that we can attract, assimilate or retain other highly qualified personnel in the future. We Have Limited Product Liability Insurance Due to the High Cost of Same 11 We manufacture, market and sell baked goods and dessert products. In the event our products are tainted/spoiled or cause illness in consumers, we may face potential claims. Due to the high cost of product liability insurance, we only maintain insurance coverage of $2,000,000 to protect against claims associated with the consumption of our product. Any claim against us, whether or not successful, may result in our expenditure of substantial funds and litigation. Further, any claims may require management's time and use of our resources and may have a materially adverse impact on us. Geographic Concentration in New York City Tri-State Area Most of Brooklyn Cheesecake & Desserts Company, Inc. retail and institutional/wholesale customers are located in the New York City metropolitan area. Adverse changes in economic conditions in the New York City metropolitan area are more likely to affect the Company's business, financial condition and results of operations than if its operations were spread over a larger market area. Government Regulation: Maintenance of Licenses and Certification Brooklyn Cheesecake & Desserts Company, Inc. is subject to numerous state regulations relating to the preparation and sale of food. It is also subject to federal and state laws governing the Company's relationship with employees, including minimum wage requirements, overtime, working and safety conditions, and citizenship requirements. The failure to obtain or retain the required food licenses or to be in compliance with applicable governmental regulations, or any increase in the minimum wage rate, employee benefits costs (including costs associated with mandated health insurance coverage) or other costs associated with employees, could adversely affect our business, financial condition or results of operations. In addition, the Company's products are certified as kosher by independent entities. We believe that we will continue to meet the kosher certification requirements. However, the failure to retain or obtain such certification in the future could have a material adverse effect on our business, financial condition or results of operations. Continuing Changes in Food Service Industry The results of operations of food service businesses are affected by, among other things, changes in consumer tastes, national, regional and local economic conditions, demographic trends, traffic patterns and the type, number and location of competing units. Multi-unit food service companies also can be substantially adversely affected by publicity resulting from poor food quality, illness, injury or other health concerns or operating difficulties stemming from one unit or a limited number of units, or health concerns as to particular types of food or methods of preparing food. There can be no assurance that the Company will be able to maintain the quality of its food products. In addition, dependence on frequent deliveries of fresh ingredients subjects food service businesses to the risk that shortages or interruptions in supply, caused by adverse weather or other conditions, could adversely affect the availability, quality and cost of ingredients. Competition The baking industry is a highly competitive and highly fragmented industry. Brooklyn Cheesecake & Desserts Company, Inc. competes with national, regional and local bakeries as well as supermarket chains that have in-store bakeries. Many of these competitors are larger; more established and have greater financial and other resources than we do. Competition in both the retail and institutional/wholesale baking industry is based on product quality, brand name loyalty, price and customer service. Competitors with significant economic resources in the baking industry could, at any time, enter the wholesale or retail bakery/cafe business. Quarterly Fluctuations; Seasonality; Possible Volatility of Stock Price Brooklyn Cheesecake & Desserts Company, Inc. operating results may be subject to seasonal fluctuations, especially during the Thanksgiving, Christmas, Chanukah, Easter and Passover seasons. Such variations could cause the market price of the Common Stock to fluctuate substantially. In addition, the stock markets in the United States have, from time to time, experience significant price and volume fluctuations that are unrelated or disproportionate to the operating performance of individual companies. Such fluctuations may adversely affect the price of the Company's Common Stock. 12 Possible Adverse Effect of Issuance of Preferred Stock Brooklyn Cheesecake & Desserts Company, Inc Restated Certificate of Incorporation authorizes the issuance of 2,000,000 shares of Preferred Stock, with designations, rights and preferences as determined from time to time by the Board of Directors. As a result of the foregoing, the Board of Directors can issue, without further shareholder approval, Preferred Stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of Common Stock. The issuance of Preferred Stock could, under certain circumstances, discourage, delay or prevent a change in control of the Company. STATEMENTS REGARDING FORWARD-LOOKING INFORMATION This annual report contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Company including statements relating to the cost savings, revenue enhancements and marketing and other advantages that are expected to be realized from the Company's plans to restructure and consolidate its operations and grow through strategic acquisitions. Such forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those contemplated by such forward-looking statements. Such risks and uncertainties include, without limitation: (1) expected cost savings from the restructured or consolidated operations cannot be fully realized; (2) difficulties relating to the integration of new businesses that may be acquired; (3) the impact of competition on revenues and margins; (4) increases in the costs of ingredients; and (5) other risks and uncertainties as may be detailed from time to time in the Company's public announcements and Commission filings. ITEM 7. FINANCIAL STATEMENTS Report of Sherb & Co., LLP, Independent Registered Public Accounting Firm 14 Independent Auditors' Report 15 Consolidated Balance Sheet 16 Consolidated Statements of Operations 17 Consolidated Statements of Stockholders' Equity (Deficiency) 18 Consolidated Statements of Cash Flows 19 Notes to Consolidated Financial Statements 20-31 13 Report of Independent Registered Public Accounting Firm To The Board of Directors and shareholders Brooklyn Cheesecake & Desserts Company, Inc. We have audited the accompanying consolidated balance sheet of Brooklyn Cheesecake & Desserts Company, Inc. and Subsidiaries as of December 31, 2004, and the related consolidated statements of operations, stockholders' equity (deficiency), and cash flows for the year ended December 31, 2004. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Brooklyn Cheesecake & Desserts Company, Inc. as of December 31, 2004, and the results of its operations and cash flows for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the Company incurred significant losses from continuing operations for the years ended December 31, 2004 and 2003 and as of December 31, 2004 has a working capital deficiency in the amount of $659,923, which raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are discussed in the notes to the financial statements. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Sherb & Co., LLP ---------------------------- Certified Public Accountants New York, New York March 15, 2005 14 INDEPENDENT AUDITORS' REPORT Board of Directors Brooklyn Cheesecake & Desserts Company, Inc. We have audited the accompanying consolidated statements of operations, stockholders' equity (deficiency), and cash flows for the year ended December 31, 2003 of Brooklyn Cheesecake & Desserts Company, Inc. (formerly Creative Bakeries, Inc.). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 audit provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of its operations and cash flows of Brooklyn Cheesecake & Desserts Company, Inc. (formerly Creative Bakeries, Inc.) for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the Company incurred significant losses from continuing operations for the year ended December 31, 2003, which raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are discussed in the notes to the financial statements. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. ZELLER WEISS & KAHN, LLP March 17, 2004 Mountainside, New Jersey 15 BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES (FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES) CONSOLIDATED BALANCE SHEET - DECEMBER 31, 2004 ASSETS Current assets: Cash and cash equivalents $ 35,225 Accounts receivable, less allowance for doubtful accounts of $400 300,331 Inventories 103,802 Prepaid expenses 49,139 ------------ Total current assets 488,497 ------------ Property and equipment, net 318,475 ------------ Other assets: Security deposits 5,765 Tradename , net of amortization 73,125 Total other assets 78,890 ------------ $ 885,862 ============ LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current liabilities: Accounts payable $ 450,981 Accrued expenses 43,935 Capital lease obligation 8,424 Notes payable 46,971 Notes payable, officer 598,109 ------------ Total current liabilities 1,148,420 ------------ Other liabilities: Capital lease obligation, net of current portion 38,505 Notes payable, net of current portion 41,460 Notes Payable, officer, net of current portion 35,451 Deferred rent 19,680 ------------ Total other liabilities 135,096 ------------ Stockholders' deficiency: Preferred stock $.001 par value, authorized 2,000,000 shares, none issued -- Common stock, $.001 par value, authorized 30,000,000 shares, issued and outstanding 8,495,302 shares 8,495 Additional paid in capital 11,537,145 Accumulated deficit (11,943,294) ------------ Total stockholders' deficiency (397,654) ------------ $ 885,862 ============ See notes to consolidated financial statements. 16 BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES (FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES) CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, -------------------------- 2004 2003 ----------- ----------- Net sales $ 3,035,323 $ 3,369,742 Cost of sales 2,555,536 2,904,140 ----------- ----------- Gross profit 479,787 465,602 Selling, general and administrative expenses 963,669 784,253 ----------- ----------- Loss from operations (483,882) (318,651) ----------- ----------- Change in estimate of straight-line rent -- (57,978) Sale of Trade name rights (25,000) -- Write-off of Trade name rights 42,981 -- Gain on sale of assets (10,000) -- Interest expense, net 96,213 20,206 Other Income (13,752) -- ----------- ----------- Total other expense (income) 90,442 (37,772) ----------- ----------- Loss from continuing operations (574,324) (280,879) Discontinued operations: Income from operations of New York facility -- 134,265 ----------- ----------- Net loss ($ 574,324) ($ 146,614) =========== =========== Earnings per common share Basic and fully diluted: Continuing operations $ (0.09) $ (0.05) Discontinued operations -- 0.02 ----------- ----------- Net loss per share $ (0.09) $ (0.03) =========== =========== Weighted average number of common shares outstanding 6,363,545 5,461,545 =========== =========== See notes to consolidated financial statements. 17 BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES (FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) YEARS ENDED DECEMBER 31, 2004 AND 2003
Common Stock --------------------------- Total Number Additional Stockholders' of Paid in Accumulated Equity Shares Amount Capital Deficit (Deficiency) ------------ ------------ ------------ ------------ ------------ Balance at January 1, 2003 5,446,750 $ 5,447 $ 11,346,093 (11,222,356) $ 129,184 Stock issued for professional services 50,000 50 4,950 -- 5,000 Reclassification of warrants payable -- -- (115,625) -- (115,625) Net loss for the year ended December 31, 2003 (146,614) (146,614) ------------ ------------ ------------ ------------ ------------ Balance at December 31, 2003 5,496,750 $ 5,497 11,235,418 (11,368,970) (128,055) ============ ============ ============ ============ ============ Stock issued for salary 665,738 $ 665 $ 99,935 $ -- $ 100,600 Stock issued for professional services 69,534 69 10,431 -- 10,500 Stock issued for repayment of debt 327,869 328 49,672 -- 50,000 Stock issued for warrant 314,715 315 (315) -- -- Exchange of warrants payable 1,220,696 1,221 114,404 -- 115,625 Stock issued for Directors' fees 400,000 400 27,600 -- 28,000 Net loss for the year ended December 31, 2004 (574,324) (574,324) ------------ ------------ ------------ ------------ ------------ Balance at December 31, 2004 8,495,302 $ 8,495 $ 11,537,145 $(11,943,294) $ (397,654) ============ ============ ============ ============ ============
See notes to consolidated financial statements. 18 BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES (FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES) CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, ------------------------ 2004 2003 --------- --------- Operating activities: Loss from continuing operations ($574,324) ($280,879) Adjustments to reconcile loss from continuing operations to cash used in continuing operations: Depreciation and amortization 100,068 91,981 Common stock issued for services 139,100 5,000 Write-off of tradename right 42,981 -- Change in straight-line rent accounting estimate -- (57,978) Interest on accrued long-term debt -- 7,480 Changes in operating assets and liabilities from continuing operations: Accounts receivable (125,348) 10,294 Inventories 69,717 17,426 Prepaid expenses 16,937 (2,308) Security deposits (1,051) -- Accounts payable 84,822 (43,664) Accrued expenses (43,926) 20,268 Deferred rent 14,160 (9,102) --------- --------- Net cash used in operating activities (276,864) (241,482) --------- --------- Investing activities: Purchase of property and equipment (98,730) (53,282) --------- --------- Net cash used in investing activities (98,730) (53,282) --------- --------- Financing activities: Proceeds from officers' notes payable 518,388 54,000 Proceeds from notes payable 59,908 300,000 Payment of officers' note payable -- (8,263) Payment of notes payable (250,000) (2,648) Loan acquisition costs -- (16,957) --------- --------- Net cash provided by financing activities 328,296 _326,132 --------- --------- Net (decrease) increase in cash and cash equivalents (47,298) 31,368 Cash and cash equivalents, beginning of year 82,523 51,155 --------- --------- Cash and cash equivalents, end of year $ 35,225 $ 82,523 ========= ========= Cash paid during the year for: Interest: $ 88,865 $ 12,059 ========= ========= Non-cash investing and financing transactions: Reclassification of warrants payable $(115,625) $ 115,625 ========= ========= Issuance of common shares for debt $ 50,000 $ -- ========= =========
See notes to consolidated financial statements. 19 BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES (FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 AND 2003 1. Going concern: During the years ended December 31, 2004 and 2003, the Company incurred losses frt 6 6 om continuing operations in the amount of $574,324 and $280,879, respectively, and as of December 31, 2004 had a net working capital deficiency of $659,923. Although the Company is currently operating its businesses, their continuation is contingent upon, among other things, the continued forbearance by the Company's creditors from exercising their rights in connection with delinquent accounts payables. These conditions, among others, raise substantial doubt about the Company's ability to continue as a going concern. The Company intends to raise capital either through an offering of convertible debentures or conventional financing. The proceeds would be used to upgrade the production process. The Company's product line continues to be streamlined, and greater emphasis has been placed on marketing portion controlled dessert items. In view of these matters management believes that the actions presently being taken to revise the Company's operating and financial requirements provide the opportunity for the Company to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. 2. Summary of significant accounting policies: Principles of consolidation: The accompanying consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. Cash and cash equivalents: For the purpose of the statement of cash flows, the Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents. Inventories: Inventories are stated at the lower of cost (first-in-first-out) or market. Property and equipment: The cost of property, plant and equipment is depreciated over the estimated useful lives of the related assets. The cost of leasehold improvements is depreciated over the lesser of the length of the related leases or the estimated useful lives of the assets. Depreciation is computed on the straight-line method for financial reporting purposes and on the modified cost recovery system method for income tax basis. Deferred rent: The accompanying consolidated 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 expenses as required by generally accepted accounting principles. 20 BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES (FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 AND 2003 2. Summary of significant accounting policies (continued): Use of estimates: 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. Per share amounts: Net earnings per share are calculated by dividing net earnings by the weighted average shares of common stock of the Company and weighted average of common stock equivalents outstanding for the period. Common stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options. Earnings Per Share: Basic earnings per share ("EPS") is determined by dividing net income for the period by the weighted average number of common shares outstanding during the same period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock, which would then share in the earnings of the Company. Stock options have been excluded as common stock equivalents in the diluted earnings per share because their effect would be anti-dilutive. 325,000 stock options have been excluded. Recognition of Revenue: Income from sales of product is recognized when the orders are completed and shipped or possession of product is taken by the customer provided that collection of the resulting receivable is reasonably assured. The Company's goods are shipped both Free on Board ("F.O.B.") shipping point and F.O.B. destination. Shipping and Handling Costs The Company follows the guidance of EITF 00-10, "Accounting for Shipping and Handling Fee and Costs". The Company's shipping costs of $65,468 and $73,364 for the periods ending December 31, 2004 and 2003, respectively, and are included in warehouse and delivery expenses. Income Taxes: The Company accounts for income taxes in accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." The Company recognizes deferred tax assets and liabilities based on the differences between the book bases and the tax bases of the assets and liabilities, using the effective tax rates in the years in which the differences are expected to reverse. A valuation allowance is recorded when it is probable that some or all of a deferred tax asset will not be realized. Impairment of Long-Lived Assets: The Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. The recoverability of assets held and used in operations is measured by a comparison of the carrying amount of the assets to the future net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. 21 BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES (FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 AND 2003 2. Summary of significant accounting policies (continued): During the year ended December 31, 2004 the Company expensed $42,981 remaining on their William Greenberg Tradename, due to their carrying amount exceeding their fair value. Stock Based Compensation: As permitted under SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," which amended SFAS No. 123, "Accounting for Stock-Based Compensation," the Company has elected to continue to follow the intrinsic value method in accounting for its stock-based employee compensation arrangements as defined by Accounting Principles Board Opinion ("APB") 25, "Accounting for Stock Issued to Employees," and related interpretations including FASB Interpretation ("FIN") 44, "Accounting for Certain Transactions Involving Stock Compensation," an interpretation of APB 25. Under APB 25, if the exercise price of the Company's employee stock options or stock purchase warrants equals or exceeds the market price of the underlying stock on the date of grant no compensation expense is recognized. Fair Value of Financial Instruments: The Company's financial instruments consist of cash, accounts receivable, accounts payable, accrued expenses, notes payable and long-term debt. The carrying amounts of the financial instruments reported in the consolidated balance sheet approximate fair value based on the short-term maturities of these instruments. Reclassifications: Certainreclassifications have been made to the prior year's consolidated financial statements to conform to current year's presentation. Recent accounting pronouncements: In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4." SFAS No. 151 clarifies that abnormal inventory costs such as costs of idle facilities, excess freight and handling costs, and wasted materials (spoilage) are required to be recognized as current period costs. The provisions of SFAS No.151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management is currently evaluating the provisions of SFAS No. 151 and does not expect the adoption will have a material impact on the Company's financial position, results of operations or cash flows. In December 2004, the FASB finalized SFAS No. 123R "Share-Based Payment" ("SFAS 123R"), amending SFAS No. 123, effective beginning the Company's first quarter of fiscal 2006. SFAS 123R will require the Company to expense stock options based on grant date fair value in its financial statements. Further, adoption of SFAS No. 123R will require additional accounting related to income tax effects and additional disclosure regarding cash flow effects resulting from share-based payments arrangements. The effect of expensing stock options on the Company's results of operations using a Black-Scholes option-pricing model as presented in Note 2. The adoption of SFAS 123R will not effect the Company's cash flows or financial position, but may have an adverse impact on results of operations if options are granted in the future. In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - an amendment for APB Opinion No. 29". This statement amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. 22 BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES (FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 AND 2003 2. Summary of significant accounting policies (continued): A nonmonetary exchange has commercial substance if future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of SFAS No. 153 are effective for the Company's fiscal year ended December 31, 2006. The adoption of SFAS No. 153 is not expected to have a material impact on the Company's consolidated financial position, liquidity, or results of operations. In January 2003, as revised December 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at the risk for the entity to finance its activities without additional financial support from other parties. FIN 46 is effective for the periods ending after December 15, 2003 for certain types of entities and after December 15, 2004 for other types of entities. On March 3, 2005 the FASB issued FASB Staff Position FIN 46 (R)-5, which addresses whether a reporting enterprise should consider whether it holds an implicit variable interest in a variable interest entity ("VIE") or a potential VIE when specific conditions exist. The guidance shall be applied to the first reporting period beginning after March 3, 2005, but early application is permitted for periods which financial statements have not yet been issued. The adoption of FIN 46 (R)-5 is not expected to have a material impact on the Company's consolidated financial position, liquidity, or results of operations. 3. Concentration of credit risk and major customers: 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 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 December 31, 2004, the Company had uninsured cash balances of $21,082. At December 31, 2004 there were two customers whose balances included in accounts receivable comprised 41% and 14% of total accounts receivable. During the years ended December 31, 2004 that customer accounted for 26% of total revenue. In the year ended December 31, 2003 two customers that accounted 16% and 17% of revenue. Purchases from three suppliers for the year ended December 31, 2004 represented approximately 75% of non-affiliated purchases. For the year ended December 31, 2003 purchases from three suppliers represented approximately 50% of non-affiliated purchases. At December 31, 2004, amounts due to the suppliers amounted to 60% of accounts payable. 4. Accounts receivable: Following is a summary of receivables at December 31, 2004: Trade accounts $ 300,731 Less allowance for doubtful accounts (400) --------- $ 300,331 23 BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES (FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 AND 2003 5. Inventories: Inventories at December 31 consist of: Finished goods $ 33,955 Raw materials 31,288 Supplies 38,559 -------- $103,802 6. Property and equipment: The following is a summary of property and equipment at December 31, 2004: Baking equipment $1,492,810 Furniture and fixtures 106,509 Leasehold improvements 180,422 ---------- 1,779,741 Less: Accumulated depreciation and amortization 1,461,266 ---------- $ 318,475 Depreciation expense charged to operations was $81,270 and $81,822 in 2004 and 2003, respectively. 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. Loan acquisition costs: The Company incurred loan acquisition costs in the amount of $16,957 in connection with one of the notes payable financings the Company entered into in 2003. These costs are being amortized over the life of the loan. This loan was repaid in 2004, and all remaining costs were expensed. Loan amortization expense for the year ended December 31, 2004 and 2003 amounted to $12,798 and $4,159, respectively. 8. Tradename and licensing agreements: On March 7, 2002, the Company purchased the rights to the tradenames Brooklyn Cheesecake Company, Inc. and Brooklyn Cheesecake & 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 was $6,000 and $6,000, respectively, for the years ended December 31, 2004 and 2003. The following is a schedule of future amortizations on the trade name: Years Ended December 31, ------------------------ 2005 $ 6,000 2006 6,000 2007 6,000 2008 6,000 2009 6,000 Thereafter 43,125 ---------- $ 73,125 ========== The Company had a fully amortized licensing agreement for the use of the trademark and name of one of its WGJ subsidiary and various recipes and methods used in the production of baked and other goods. The agreement called for royalties to be paid upon reaching certain sales levels by the licensee. The Company sold this licensing agreement in 2004 for $25,000. 24 BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES (FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 AND 2003 9. Notes payable to executive officer: a) Note dated May 21, 2004 in the amount of $54,000, payable on demand, with interest at the rate of 8.5% per annum. The note is unsecured. This note consolidates into a single promissory note, several loan advances received by the Company in the first and second quarters of 2004. b) Note dated June 15, 2004 in the amount of $317,000, with interest at the rate of 13% per annum. Interest payments are due on the last day of each month with the note maturing on August 31, 2004. The note is secured by all of the Company's assets. The note was extended to November 30, 2004 and April 30, 2005, respectively. c) Note payable effective April 2, 2003 in the original amount of $50,000, with a variable interest rate that was 8.4% at December 31, 2004. Monthly payment of principal and interest are approximately $1,300. Note is unsecured and due on demand. The outstanding balance on the loan was $47,051 at December 31, 2004. d) Note dated January 1, 2003 in the original amount of $88,000 with an interest rate of 8.5% per annum. The note is unsecured. Interest only payments were due for the first eighteen months and principal and interest payments are due monthly thereafter until the maturity date of December 31, 2005. The balance on the note was $103,858 at December 31, 2004 including accrued interest. e) Note dated December 31, 2004 in the amount of $111,651, payable on demand, with interest at the rate of 8.5% per annum. The note is unsecured. This note consolidates in a single promissory note several loan advances received by the Company in the third and fourth quarters of 2004. Maturities for the next five years are as follows: December 31, 2005 $598,109 December 31, 2006 11,400 December 31, 2007 11,400 December 31, 2008 11,400 December 31, 2009 1,251 -------- $633,560 10. Long-term debt: Note dated May 25, 2004 in the amount of $28,000, payable on demand, with interest at the rate of 8.5% per annum. The note is unsecured. This note consolidates in a single promissory note several loan advances received during the first and second quarters of 2004. The holder of the note is a member of the Board of Directors. Note payable effective August 18, 2003 in the original amount of $50,000, with a variable interest rate that was 9.25% at December 31, 2004. Monthly payments of principal and interest are approximately $1,000. Note is unsecured and due on demand. The outstanding balance on the loan was $49,020 at December 31, 2004. The holder of the note is a member of the Board of Directors. 25 BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES (FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 AND 2003 10. Long-term debt (continued): Note dated June 28, 2004 in the amount of $2,500, payable on demand, with interest at the rate of 8.5% per annum. The note is unsecured. The holder of the note is a member of the Board of Directors. Note dated December 31, 2004 in the amount of $8,911, payable on demand, with interest at the rate of 8.5% per annum. The note is unsecured. This note consolidates in a single promissory note several loan advances received during the third and fourth quarters of 2004. The holder of the note is a member of the Board of Directors. Maturities for the next five years are as follows: December 31, 2005 $46,971 December 31, 2006 7,560 December 31, 2007 7,560 December 31, 2008 7,560 December 31, 2009 7,560 Thereafter 11,280 ------- $88,431 11. Leases - Capital: Capitalized lease with an order date of March 9, 2004, in the amount of $47,940 plus a 10% buyout amount of $4,794. Monthly payments of principal and interest in the amount of $1,051 commencing April 7, 2004, payable over 60 months. The lease matures in April 2009. The balance of the lease was $46,929 at December 31, 2004. The note is guaranteed by a member of the Board of Directors. At December 31,2004 equipment held under capital leases is summarized as below: 2004 ------- Manufacturing equipment $53,129 Less: Accumulated depreciation 2,656 ------- $50,743 ======= Minimum Future Lease Payments Minimum future lease payments under capital leases as of December 31, 2004 for each of the next five years and in the aggregate are: Year Ended December 31, 2005 $ 12,612 2006 12,612 2007 12,612 2008 12,612 2009 7,947 -------- Total minimum lease payments 58,395 Less: Amount representing interest 11,466 -------- Present value of net minimum lease payment $ 46,929 ======== The interest rate on the capitalized lease is 9.7% and is imputed based on the lower of the Company's incremental borrowing rate at the inception of the lease or the lessor's implicit rate of return. 26 BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES (FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 AND 2003 12. Common stock: The following common stock issuances were made in the year ended December 31, 2004: - The Company issued 665,738 shares of common stock for services valued at $100,600. Of these shares, 655,738 were issued to an officer of the Company, valued at $100,000, or $0.15 per share, the closing trading price on the date of issuance. - The Company issued 69,534 shares of common stock for services rendered valued at $10,500, pursuant to a monthly service retainer agreement. These shares were issued at various times during the year and have per share values ranging from approximately $0.04 to $0.22 per shares depending on the closing trading price on the date of issuance. - The Company issued 327,869 shares of common stock in settlement of a loan payable of $50,000. These shares are valued at approximately $0.15 per shares the closing trading price on the date of issuance. - In payment of fees to Company Board members the Company issued 400,000 shares of common stock, valued at $28,000. These shares are valued at approximately $0.07 per shares the closing trading price on the date of issuance. - During the year ended December 31, 2004 the Company settled their warrant liability payable of $115,625 as it related to 1,156,250 outstanding common stock purchases warrants. These warrants had given the warrant holder the right to elect that the Company repurchase each warrant for consideration consisting of $.10 per warrant plus 40% of one share of the Company's common stock or exercise the warrants at $.6875 per warrant less the $.10 feature. The warrants were to have originally expired on December 31, 2000, and had been extended for a one-year at each subsequent year end until December 31, 2004, in exchange for the warrant holders' forbearance, requiring that the Company repurchase the warrants. Under the terms of settlement for these warrants, the Company issued 1,220,696 shares of common stock (i) 758,197 shares of common stock, which was equivalent to the approximately $0.1525 market value per share, or $115,625, which settled the Company's obligation to repurchase at $0.10 per share each of the 1,156,250 shares underlying the warrant and (ii) 462,500 shares of common stock, which settled the Company's obligation to redeem the warrants at 40% of one share for each of the 1,156,250 shares underlying the warrant. The total value recorded for these shares is the par value of the 1,220,696 shares or $1,221. These warrants were sold by the Company's prior management in January 1997 as part of a private placement in order to finance the purchase of the Company's JM Specialties subsidiary. 27 BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES (FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 AND 2003 - In July 1995, in order to obtain financing for the acquisition of Greenberg's -L.P., a discontinued subsidiary, the Company sold to a lender for $1,000, a Convertible Note which in accordance with the terms of the conversion agreement, was converted by the lender into a warrant to acquire shares of stock of the Company in a number sufficient to equal 6% of the Company's then outstanding preferred and common stock. The warrant contained anti-dilutive provisions throughout its six (6) year life which entitles the warrant holder to its applicable percentages of the Company's capital stock on the date the warrant is exercised. Under the terms of the warrant, a total of 314,715 shares, were potentially issuable on the date that the warrant expired on October 1, 2001. The lender had inquired regarding exercising its right under the warrant before the expiration date. The lender, who was in bankruptcy, had held discussions with the Company's management, and did not act upon the warrant. A trustee for lender, and the Company acted on the warrant on August 23, 2004. The Company issued 314,715 shares of common stock to the trustee, in what the Company believes is satisfaction of their obligation under these warrants at the time of their expiration. The Company has not heard from the lender's bankruptcy trustee, and has determined that their obligation under this warrant has been satisfied. The Company has recorded these 314,715 shares issued at $1,000 based on the original amount of the Company received for the right to convert the Convertible note into the warrant. In February 2005, the Company amended their Certificate of Incorporation and increased the number of authorized common shares to 30,000,000 from a previous 10,000,000 shares. 13. Commitments and contingencies: The Company entered into an amendment under an existing lease for use of 27,362 square feet of office and plant space in New Jersey. The terms call for a reduction in annual rent in the first year from $200,000 to $136,800. The amendment also shifts responsibility for snow removal and landscaping from the lessee to the lessor. The new rental amounts commenced September 1, 2003 and expire December 31, 2008. The minimum future rentals on the baking facility are as follows: December 31, 2005 148,000 December 31, 2006 158,000 December 31, 2007 164,000 December 31, 2008 112,000 ------- $582,000 Rent expense including real estate taxes and common area charges amounted to $160,661 in 2004 and $226,377 in 2003 and includes straight-line amortization of rent adjustments discussed in Note 2. The Company entered into an agreement for legal services commencing on November 1, 2003. The agreement calls for a monthly retainer fee of $1,500 of which $750 is to be paid in cash and $750 to be paid through the issuance of an equivalent number of restricted common shares based on an agreed upon market value formula. The shares are to be issued on a quarterly basis. 28 BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES (FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 AND 2003 14. 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. The Company had a net loss of $574,324 during the year ended December 31, 2004 and had no Federal or State income tax obligations. The Company had no significant deferred tax effects resulting from the temporary differences that give rise to deferred tax assets and deferred tax liabilities for the year ended December 31, 2004 other than net operating losses. 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 carryforward of approximately $8,886,000. The valuation allowance for deferred tax assets increased by approximately $160,000 during the year ended December 31, 2004. The Company has made no provision for a deferred tax asset nor for the increase in such, due due to a valuation allowance having 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 that not to be realized. The Company's loss carryforward of approximately $8,886,000 may be offset against future taxable income. The carryforward losses expire at the end of the years 2005 through 2024. 29 BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES (FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 AND 2003 15. Common stock options: The Board of Directors has full authority and discretion to determine the eligible participants to be granted the options, the exercise option price, the date of issuance and the date of expiration. The total number of shares set aside was 325,000. At the grant date the option exercise price was equal to the fair market value of the Company's stock. The options expire five years from the grant date. There were no options granted during the calendar years 2004 and 2003. Information relating to stock option and warrant activity for 2004 is as follows: Weighted Shares Average Underlying Exercise Options Price ---------- ---------- Outstanding at January 1, 2003 1,386,315 $ 0.50 Granted -- -- Cancelled (284,000) (0.66) ---------- ---------- Outstanding at December 31, 2003 1,102,215 $ 0.45 Granted -- -- Cancelled (777,215) 0.36 ---------- ---------- Outstanding at December 31, 2004 325,000 $ 0.10 ========== ========== Options exercisable at December 31, 2003 1,077,215 $ 0.46 ========== ========== Options exercisable at December 31, 2004 325,000 $ 0.10 ========== ========== Stock Options Outstanding Weighted Avg Weighted Shares Remaining Average Range of Underlying Contractual Exercise Exercise Prices Options Life in Years Price --------------- ----------- -------------- ---------- $.05-.25 325,000 1.91 $0.10 =========== ============== ========== Stock Options Exercisable Weighted Avg Weighted Shares Remaining Average Range of Underlying Contractual Exercise Exercise Prices Options Life in Years Price --------------- ----------- -------------- ---------- $.05-.25 325,000 1.91 $0.10 =========== ============== ========== 30 BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. AND SUBSIDIARIES (FORMERLY CREATIVE BAKERIES, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 AND 2003 16. Discontinued operations: In 1998, the Company adopted a formal plan to close their WGJ subsidiary., 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. In November 2002, the Company received the last of its payments on the note receivable from the sale of its discontinued operations. The Company determined that the statute of limitations had expired as of December 31, 2003 and 2002 on old accounts payable related to WGJ and wrote them off accordingly. Income from discontinued operations presented in the statement of operations for the year ending December 31, 2003 includes $134,625, related to this adjustment. The Company does not anticipate any further income or loss from its discontinued operations in the future. 17. Subsequent Events Effective March 1, 2005, the Company entered into an agreement, with a computer consulting service, for the development and launching of a commercial grade E-commerce website for the sale of the Company's cheesecakes and bake goods over the Internet. Under the terms of the agreement, the principals of computer consulting company, along with E-commerce developers employed by the computer consultants who participate in the website design and development, will receive an aggregate of 2,500,000 shares of restricted common stock of the Company; 1,050,000 shares will be issued upon commencement of the work as set forth in the agreement with the balance of 1,450,000 shares to be issued upon completion and launching of the site for commercial activity. The shares of common stock when issued will be subject to a voting rights agreement whereby the holders of the shares will provide the Company's chairman a proxy to vote the shares. The Company has not valued the shares issued under these agreements as of March 31, 2005. In January 2005 the Company issued 1,460,000 options to employees and Board member at an exercise price of $0.08 per share, which is approximate fair value of the Company's common stock at the time of grant. As of January 1, 2005, the Company entered into an employment agreement with the Chief Executive Officer. The agreement is for a period of three years. Compensation will be $200,000 annually with $100,000 paid in equal, weekly installments and $100,000 payable in either cash or stock, the manner of which will be determined by mutual agreement between the Company and the Chief Executive Officer. The agreement also entitles the Chief Executive Officer to a bonus equal to 250% of salary as determined by the compensation committee. The agreement also grants 500,000 options at $0.08 per share. As of January 1, 2005, the Company entered into an employment agreement with the Chief Financial Officer. The agreement is for a period of three years. Compensation will be $96,000 annually with $48,000 paid in equal, weekly installments and $48,000 payable in either cash or stock, the manner of which will be determined by mutual agreement between the Company and the Chief Financial Officer. The agreement also entitles the Chief Financial Officer to a bonus equal to 250% of salary as determined by the compensation committee. The agreement also grants 200,000 options at $0.08 per share. 31 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. On November 17, 2004, the Company's former certified accountants, Zeller, Weiss & Kahn LLP ("Zeller") informed the Company that they had resigned. Zeller was previously appointed as the Company's certifying accountants on January 1, 1997. Zeller's reports on the financial statements of the Company for its fiscal years ended December 31, 2003 and 2002 did not contain an adverse opinion or a disclaimer of opinion nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles, except that the report of Zeller on the financial statement of the Company for its fiscal years ended December 31, 2003 and 2002 included the following separate paragraph: "The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the Company incurred significant losses from continuing operations for the years ended December 31,2003 and 2002 and as of December 31,2003 has a working capital deficiency in the amount of $493,733, which raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are discussed in the noted to the financial statements. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty." During the time reports were issued and the interim period in which Zeller served as the Company's certifying accountants there were no disagreement(s) with Zeller on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of Zeller, would have caused Zeller to make reference to the subject matter of such disagreement(s) in connection with its audit report On January 13, 2005, the Company's Board of Directors engaged Sherb & Co., LLP ("Sherb") to audit the consolidated financial statements of the Company. During the Company's two most recent fiscal years and through January 13, 2005, the Company has not consulted with Sherb regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company's financial statements, and neither a written report nor oral advice was provided that was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-B and the related instructions to Item 304 of Regulation S-B ITEM 8A. CONTROLS AND PROCEDURES As of the year-end period covered by this Annual Report on Form 10-KSB, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the forgoing, our Chief Executive Officer has concluded that our disclosure controls and procedures were effective as of the year ended December 31, 2004. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 32 ITEM 8B. OTHER INFORMATION On August 31, 2004, the $317,000 note payable to an officer matured. The note was extended to November 30, 2004 and April 30, 2005, respectively. On December 9, 2004 the Company entered into a Warrant Exchange and Release Agreement with the Bailey Family Trust, Fortuna Investment Partners, and Fortuna Unplugged whereby the Company exchanged warrants totaling $115,625 for 1,220,696 shares of common stock. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Information Concerning the Board of Directors and Executive Officers The following table sets forth certain information concerning the Board of Directors and executive officers of the Company:
- ------------------------------------------ --------------------------------------------- ------------------------- Name of Director or Executive Officer, Age and Position Principal Occupation Date of Initial Held with Company For Previous Five Years Election as Director - ------------------------------------------ --------------------------------------------- ------------------------- Ron Schutte, 48 Chief Executive Officer, June 1, 2001 President and Director Aug. 2000 - May 2001 Brooklyn Cheesecake Company Apr. 1999 - Jul 2000 Crestwood Consulting Mar 1997 - Mar 1999 Mother's Kitchen July 1982 - Feb 1997 Pres,Creative Bakers Inc. Brooklyn, NY - ------------------------------------------ --------------------------------------------- ------------------------- Anthony Merante, 44 Certified Public Accountant January 2003 Vice-President and Chief Financial Officer Director - ------------------------------------------ --------------------------------------------- ------------------------- Carmelo Foti, 52 VP & Manager Credit & Marketing National January 2003 Director Bank Of Egypt, NY Branch - ------------------------------------------ --------------------------------------------- ------------------------- Vincent Bucchimuzzo, 51 Executive for CINN Worldwide January 2003 Director Westchester Venture Group Univest Partners 1982-1995 - ------------------------------------------ --------------------------------------------- ------------------------- Liborio Borsellino Partner, RBC and Associates August 2004 Director - ------------------------------------------ --------------------------------------------- ------------------------- David Rabe President, Interpro Systems, Inc. August 2004 Director - ------------------------------------------ --------------------------------------------- -------------------------
33 All directors hold office until the next annual meeting of shareholders and until their successors are elected and qualified. Officers are appointed by the Board of Directors and serve at the discretion of the Board. Section 16(a) Beneficial Ownership Reporting Compliance The Securities and Exchange Commission (the "Commission") has comprehensive rules relating to the reporting of securities transactions by directors, officers and shareholders who beneficially own more than 10% of the Company's Common Shares (collectively, the "Reporting Persons"). These rules are complex and difficult to interpret. Based solely on a review of Section 16 reports received by the Company from Reporting Persons, the Company believes that no Reporting Person has failed to file a beneficial ownership report on a timely basis during the most recent fiscal year, except for Messrs Schutte and Merante who filed beneficial ownership reports late. ITEM 10. EXECUTIVE COMPENSATION Compensation of Directors Directors of the Company receive a fee of $1,000 for attending each meeting of the Board of Directors or a committee thereof. In addition, all directors are reimbursed for their reasonable out-of-pocket expenses incurred in connection with attending such meetings. Executive Compensation The following table sets forth compensation paid to the Chief Executive Officer and to executive officers of the Company, excluding those executive officers who did not receive an annual salary and bonus in excess of $100,000, for the three years ended December 31, 2004
Other Annual Name and Principal Position Year Salary ($) Bonus ($) Compensation --------------------------- ---- ---------- --------- ------------- Ron Schutte, CEO 2004 $200,000 $0.00 $0.00 2003 $100,000 $0.00 $0.00 2002 $150,000 $0.00 $0.00
No other executive officer received a salary and bonus in excess of $100,000 for the three years ended December 31, 2004. 34 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth the number and percentage of Common Shares beneficially owned, as of December 31, 2004, by: (i) all persons known by the Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock; (ii) each director of the Company; (iii) each of the "named executive officers" as defined under the rules and regulations of the Securities Act of 1933, as amended; and (iv) all directors and executive officers of the Company as a group (6 persons):
- ----------------------------------------- -------------------------------------- -------------------------- Name of Beneficial Owner No. of Shares Beneficially Owned Percent - ----------------------------------------- -------------------------------------- -------------------------- Directors and Executive Officers: - ----------------------------------------- -------------------------------------- -------------------------- Ronald L. Schutte 1,137,167 (1) 13.4% - ----------------------------------------- -------------------------------------- -------------------------- Anthony J. Merante 449,298 5.3% - ----------------------------------------- -------------------------------------- -------------------------- Yona Gonen 451,000 5.3% - ----------------------------------------- -------------------------------------- -------------------------- Philip Grabow 500,000 5.9% - ----------------------------------------- -------------------------------------- -------------------------- Righthand & Co. 500,000 5.9% - ----------------------------------------- -------------------------------------- -------------------------- Bailey Family Trust 840,041 9.9% - ----------------------------------------- -------------------------------------- -------------------------- ICM Asset Managment 882,000 10.4% - ----------------------------------------- -------------------------------------- -------------------------- Fortuna & Fortuna Unplugged 580,655 6.8% - ----------------------------------------- -------------------------------------- -------------------------- Directors and Nominal Executives as a 1,786,465 21.0% Group (6 persons) - ----------------------------------------- -------------------------------------- --------------------------
* Less than 1% (1) Includes 250,000 options exercisable at $.07 per share. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Notes from Chairman and Chief Executive Officer Note dated May 21, 2004 in the amount of $54,000, payable on demand, with interest at the rate of 8.5% per annum. The note is unsecured. This note consolidates into a single promissory note, several loan advances received by the Company in the first and second quarters of 2004. Note dated June 15, 2004 in the amount of $317,000, with interest at the rate of 13% per annum. Interest payments are due on the last day of each month with the note maturing on August 31, 2004. The note is secured by all of the Company's assets. The note was extended to November 30, 2004 and April 30, 2005, respectively. Note payable effective April 2, 2003 in the original amount of $50,000, with a variable interest rate that was 8.4% at December 31, 2004. Monthly payment of principal and interest are approximately $1,300. Note is unsecured and due on demand. The outstanding balance on the loan was $47,051 at December 31, 2004. Note dated January 1, 2003 in the original amount of $88,000 with an interest rate of 8.5% per annum. The note is unsecured. Interest only payments were due for the first eighteen months and principal and interest payments are due monthly thereafter until the maturity date of December 31, 2005. The balance on the note was $103,858 at December 31, 2004 including accrued interest. Note dated December 31, 2004 in the amount of $111,651, payable on demand, with interest at the rate of 8.5% per annum. The note is unsecured. This note consolidates in a single promissory note several loan advances received by the Company in the third and fourth quarters of 2004. 35 Notes from Vice-President and Chief Financial Officer Note dated May 25, 2004 in the amount of $28,000, payable on demand, with interest at the rate of 8.5% per annum. The note is unsecured. This note consolidates in a single promissory note several loan advances received during the first and second quarters of 2004. The holder of the note is a member of the Board of Directors. Note payable effective August 18, 2003 in the original amount of $50,000, with a variable interest rate that was 9.25% at December 31, 2004. Monthly payments of principal and interest are approximately $1,000. Note is unsecured and due on demand. The outstanding balance on the loan was $49,020 at December 31, 2004. The holder of the note is a member of the Board of Directors. Note dated December 31, 2004 in the amount of $8,911, payable on demand, with interest at the rate of 8.5% per annum. The note is unsecured. This note consolidates in a single promissory note several loan advances received during the third and fourth quarters of 2004. The holder of the note is a member of the Board of Directors. The Purchase of the assets of Brooklyn Cheesecake Company Inc. On March 7, 2002, the assets of the Brooklyn Cheesecake Company were purchased by Brooklyn Cheesecake & Desserts Company, Inc, f/k/a Creative Bakeries Inc. for 300,000 shares of stock and $45,000 in cash. These assets were owned by our current C.E.O. and board member Ron Schutte. ITEM 13. EXHIBITS EXHIBITS 2.1 Purchase and Sale Agreement, dated June 2, 1995, by and among the Company, Greenberg Dessert Associates Limited Partnership, SMG Baking Enterprises, Inc. and its limited partners. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 2.2 Stock Purchase Agreement, dated as of January 17, 1997, by and between the Company and Philip Grabow, without exhibits. Incorporated by reference to Schedule 13-D filed by Philip Grabow on SEC File Number 005-48185. 3.1 Restated Certificate of Incorporation. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 3.2 Amended and Restated By-laws. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 3.3 Amendment to Certificate of Incorporation. Incorporated by reference to the Company's Current Report on Form 8-K, dated February 23, 2005. 4.1 Form of certificate for shares of Common Stock. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 4.2 Form of Representatives Warrant. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 4.3 Loan Agreement, dated July 10, 1995, by and between InterEquity Capital Partners, L.P. and the Company. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 36 10.1 Employment Agreement, dated July 10, 1995, by and between the Company and Stephen Fass. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 10.2 Employment Agreement, dated as of July 10, 1995, by and between the Company and Willa Rose Abramson. 10.3 Employment Agreement, dated as of July 10, 1995, by and between the Company and Maria Maggio Marfuggi. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 10.4 Employment Agreement and Consulting Agreement, dated July 10, 1995, by and between the Company and Seth Greenberg. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 10.5 Consulting Agreement, dated July 10, 1995, by and between the Company and William Greenberg Jr. and Carol Greenberg. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 10.6 Departmental License Agreement effective February 1995 by and between the Company and Macy's East, Inc. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 10.8 Form of Warrant for InterEquity Capital Partners, L.P. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 10.9 1995 William Greenberg Jr. Desserts and Cafes, Inc. Stock Option Plan. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 10.10 Lease Agreement dated July 1995 between the Company and Murray Greenstein. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 10.11 Lease Agreement dated January 1994 between Schnecken Baking Realty Corp. and Gerel Corporation. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 10.12 Assignment and Assumption of Lease dated July 1995 between the Company and Schnecken Baking Realty Corp. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 10.13 Lease dated April 1991 between Greenberg's 35th Street Baking Co., Inc. and Rugby Managed Asset Fund. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 10.14 Assignment and Assumption of Lease dated July 1995 between the Company and Greenberg's 35th Street Baking Co. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 10.15 Lease dated May 1989 as modified in January 1991 between Greenberg's Triple S. Baking Co., Inc. and Stahl Real Estate Co. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 37 10.16 Assignment and Assumption of Lease dated July 1995 between the Company and Greenberg's Triple S. Baking Co., Inc. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 10.17 Consulting Agreement, dated July 10, 1995, by and between the Company and Marilyn Miller. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 10.18 Form of Indemnity Agreement. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 10.19 Sublease dated December 1995 between Timothy's Coffees of the World, Inc., and the Company. Incorporated by reference to the Company's Registration Statement on Form SB-2 Registration Number 33-96094. 10.20 Lease dated March 8, 1995 between Harran Holding Corp., c/o A. J. Clarke Management and the Company. Incorporated by reference to the Company's Annual Report for the fiscal year ended December 31, 1995, on Form 10-KSB Commission File Number 1-13984. 10.21 Agreement dated January 13, 1996 by and between the Company and Barry Kaplan Associates. Incorporated by reference to the Company's Annual Report for the fiscal year ended December 31, 1995, on Form 10-KSB Commission File Number 1-13984. 10.22 Employment Agreement, dated January 23, 1997, by and between the Company and Philip Grabow. Incorporated by reference to the Company's Annual Report for the fiscal year ended December 31, 1996, on Form 10-KSB Commission. 10.23 Form of Warrant for the Private Placement made in conjunction with the JMS Subsidiary acquisition. Incorporated by reference to the Company's Annual Report for the fiscal year ended December 31, 1996, on Form 10-KSB Commission. 10.24 Stock Purchase Agreement dated August 28, 1997, between the Company and Yona Abrahami. Incorporated by reference to the Company's Current Report on Form 8-K, dated September 11, 1997 and Form 8-K/A, dated November 17, 1997. 10.25 Employment Agreement dated August 28, 1992 between the Company and Yona Abrahami. Incorporated by reference to the Company's Current Report on Form 8-K, dated September 11, 1997 and Form 8-K/A, dated November 17, 1997. 10.26 Employment Agreement dated August 28, 1992 between the Company and David Abrahami. Incorporated by reference to the Company's Current Report on Form 8-K, dated September 11, 1997 and Form 8-K/A, dated November 17, 1997. 10.27 Amendment to Stock Purchase Agreement dated March 10, 1997, between the Company and Yona Abrahami. Incorporated by reference to the Company's Annual Report for the fiscal year ended December 31, 2002, on Form 10KSB/A No. 2. 10.28 Sixth Amendment to Lease dated October 31, 2003 between the Company and Airport Plaza Shopping Center, L.L.C. Incorporated by reference to the Company's Annual Report for the fiscal year ended December 31, 2003, on Form 10KSB/A No. 2. 10.29 Loan and Security Agreement dated October 9, 2003 between the Company and Fairfield Gourmet Food Corp. Incorporated by reference to the Company's Annual Report for the fiscal year ended December 31, 2003, on Form 10KSB/A No. 2. 38 *10.30 Loan and Security Agreement dated September 1, 2004 between the Company and Ronald L Schutte. *10.31 Note dated September 1, 2004 between the Company and Ronald L Schutte. *10.32 Loan and Security Agreement dated December 1, 2004 between the Company and Ronald L Schutte. *10.33 Note dated December 1, 2004 between the Company and Ronald L Schutte. *10.34 Employment agreement dated January 1, 2005 between the Company and Ronald L Schutte. *10.35 Employment agreement dated January 1, 2005 between the Company and Anthony J. Merante. 10.36 Website Development and Service Agreement between the Company and Burbro Capital, Inc. dated as of March 1, 2005. Incorporated by reference to the Company's Current Report on Form 8-K dated March 7, 2005. *10.37 Form of Warrant Exchange and Release Agreement between the Company and Bailey Family Trust, Fortuna Investment Partners and Fortuna Unplugged dated December 9, 2004. *10.38 Promissory Note dated December 31, 2004 between the Company and Anthony J. Merante. 21.1 List of Subsidiaries of the Company, the state of incorporation of each, and the names under which such subsidiaries do business. Incorporated by reference to the Company's Annual Report for the fiscal year ended December 31, 2002, on Form 10KSB/A No. 2. *31.1 Certification of Chief Executive Officer and president pursuant to the Sarbanes-Oxley Act of 2002. *31.2 Certification of Chief Financial Officer and vice-president pursuant to the Sarbanes-Oxley Act of 2002. *32.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley-Act of 2002. *32.2 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley-Act of 2002. - ---------- * Filed Herewith. 39 ITEM 14. PRINCIPAL ACCOUNTANT'S FEES AND SERVICES The following table shows the fees that we paid or accrued for the audit and other services provided by our principal Accountant for the 2004 and 2003 fiscal years. Fiscal 2004 Fiscal 2003 ----------- ----------- Audit Fees $ 34,919 $ 27,000 Audit-Related Fees 0 0 Tax Fees 0 0 All Other Fees 0 0 -------- -------- Total $ 34,919 $ 27,000 ======== ======== Audit Fees -- This category includes the audit of our annual financial statements, review of financial statements included in our Form 10-QSB Quarterly Reports and services that are normally provided by the independent auditors in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements. Audit-Related Fees -- This category consists of assurance and related services by the independent auditors that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under "Audit Fees." The services for the fees disclosed under this category include consultation regarding our correspondence with the SEC and other accounting consulting. Tax Fees -- This category consists of professional services rendered by our independent auditors for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice. All Other Fees -- This category consists of fees for other miscellaneous items. Our Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent auditors. Under the procedure, the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the Board, or, in the period between meetings, by a designated member of Board. Any such approval by the designated member is disclosed to the entire Board at the next meeting. The audit and tax fees paid to the auditors with respect to fiscal year 2004 were pre-approved by the entire Board of Directors. 40 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 April 15, 2005. BROOKLYN CHEESECAKE & DESSERTS COMPANY, 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 March 31, 2005. Signatures Title - ------------------------------ ------------------------------------ /s/Ron Schutte President, Chief Executive - ------------------------------ Officer/Director Ron Schutte /s/ Anthony Merante Vice-President, Chief Financial - ------------------------------ Officer/Director Anthony Merante /s/ Carmelo Foti Director - ------------------------------ Carmelo Foti /s/ Vincent Bucchimuzzo Director - ------------------------------ Vincent Bucchimuzzo /s/Liborio Borsellino Director - ------------------------------ Liborio Borsellino /s/David Rabe Director - ------------------------------ David Rabe 41 EX-3.1 2 v016391_ex3-1.txt Exhibit 3.01 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF CREATIVE BAKERIES, INC. Under Section 805 of the Business Corporation Law The undersigned, being the Chief Executive Officer of CREATIVE BAKERIES, INC. does hereby certify and set forth as follows: FIRST: The name of the corporation is: CREATIVE BAKERIES, INC. SECOND: The Certificate of Incorporation was filed by the Department of State on November 12, 1993, under the name CIP, Inc. THIRD: The Certificate of Incorporation is hereby amended as follows: a) To change the name of the corporation so that paragraph FIRST shall read as follows: "FIRST: The name of the corporation is: BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC." b) To increase the number of shares of Common Stock, thereby increasing the total aggregate number of shares authorized. The number of shares of Preferred Stock shall remain unchanged. As amended, paragraph FOURTH shall read as follows: "FOURTH: The aggregate number of shares which the corporation shall have authority to issue shall be Thirty Two Million (32,000,000) shares, as follows: a. Common Stock: Of the total authorized capital stock, the corporation shall have the authority to issue Thirty Million (30,000,000) shares having a par value of one mil ($.001) each, which shares shall be designated "Common Stock" b. Preferred Stock: This corporation shall also have the authority to issue Two Million (2,000,000) shares with the par value of one mil ($.001) each, which shares shall be designated "Preferred Stock" A. Shares of Preferred Stock may be issued from time to time in one or more series, each such series to have distinctive serial designations, as shall hereafter be determined for the issuance of such Preferred Stock, from time to time, adopted by the Board of Directors pursuant to authority so to do, which is hereby vested in the Board of Directors, which resolutions shall be filed with the Department of State of the State of New York as required by law. B. Each series of Preferred Stock (i) may have such number of shares; (ii) may have such voting powers, full or limited, or may be without voting powers; (iii) may be subject to redemption at such time or times and at such prices; (iv) may be entitled to receive dividends (which may be cumulative or noncumulative) at such rate or rates, on such conditions, from such date or dates, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or series of stock; (v) may have such rights upon the dissolution of, or upon any distribution of, the assets of the corporation; (vi) may be convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock of the corporation at such price or prices or at such rates of exchange, and with such adjustments; (vii) may be entitled to the benefit of a sinking fund or purchase fund, to be applied to the purchase or redemption of shares of such series; (viii)may be entitled to the benefit of conditions and restrictions upon the creation of indebtedness of this corporation or any subsidiary, upon the issuance of any additional stock (including additional shares of such series or of any other series), and upon the payment of dividends or the making of other distributions on, and the purchase, redemption or other acquisition by this corporation or any subsidiary of any outstanding stock of this corporation; and (ix) may have such other relative, participation, optional or other rights, qualifications, all as shall be stated in said resolution or resolutions providing for the issuance of such Preferred Stock. Except, where otherwise set forth in the resolution or resolutions adopted by the Board of Directors providing for the issuance of any series of Preferred Stock, the number of shares comprising such series may be increased or decreased (but not below the number of shares then outstanding) from time to time by like action of the Board of Directors. C. Shares of any series of Preferred Stock which have been redeemed (whether through the operation of a sinking fund or otherwise) or purchased by the corporation, or which, if convertible or exchangeable, have been converted into or exchanged for shares of stock of any other class or classes, shall have the status of authorized and unissued shares of Preferred Stock and may be reissued as a part of the series of which they were, subject to the conditions or restrictions on issuance set forth in the resolution or resolutions adopted by the Board of Directors providing for the issuance of any series of Preferred Stock and subject to any filing required by law." FOURTH: The above amendments to the Certificate of Incorporation were authorized by written consent of the Board of Directors, followed by written consent of the holders of all outstanding shares entitled to vote thereon. IN WITNESS WHEREOF, this Certificate of Amendment has been subscribed this day of February, 2005, by the undersigned who affirms that the statements made herein are true under the penalties of perjury. - ---------------------------- Ronald L. Schutte Chief Executive Officer CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF CREATIVE BAKERIES, INC. Under Section 805 of the Business Corporation Law FILER: Baratta & Goldstein 597 Fifth Avenue New York, New York 10017 EX-10.3 3 v016391_ex10-30.txt Exhibit 10.30 LOAN AND SECURITY AGREEMENT LOAN AND SECURITY AGREEMENT (the "Agreement"), dated to be effective as of September 1, 2004, (the "Effective Date") by BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC., formerly known as CREATIVE BAKERIES, INC., a New York corporation ("Brooklyn Cheesecake") and J.M. SPECIALTIES, INC., A NEW JERSEY CORPORATION ("JMS") (Brooklyn Cheesecake and JMS are collectively referred to as the "Borrowers"), and RONALD L. SCHUTTE ("Lender") W I T N E S S E T H: WHEREAS, pursuant to this Agreement, the Lender has agreed to make a loan to the Borrowers upon the terms and subject to the conditions set forth herein; WHEREAS, Borrowers executed certain Secured Promissory Note in favor of Lender, dated to be effective as of September 1, 2004 (the "Note"), in the principal amount of $317,000; and WHEREAS, it is a condition to the obligation of the Lender to make the loan to the Borrowers under the Note, that the Borrowers shall have executed and delivered this Agreement to the Lender. NOW THEREFORE, in consideration of the premises and to induce the Lender to accept the Note, and to make the loan to the Borrowers, the Borrowers hereby agree with the Lender as follows: ARTICLE I THE LOAN 1.1. The Loan. Subject to the terms and conditions hereinafter provided, Lender shall lend to Borrowers Three Hundred Seventeen Thousand ($317,000) Dollars (the "Loan"), for the purposes indicated below: The Loan shall be used only for Borrowers operating requirements including but not limited to payment of debt not incurred in ordinary course of Borrowers' business and for no other purpose. 1.2. The Note. The Loan shall be evidenced by the Note substantially in the form attached hereto as Exhibit 1.2, which Note shall be executed by the Borrowers as of the Effective Date. Every term contained in the Note shall be deemed incorporated into this Agreement. To the extent any provision of the Note shall be deemed to be inconsistent with the provisions of this Agreement, however, the provisions of this Agreement shall control. 1.3. Interest 1.3.1. The outstanding principal balance of the Loan and any other obligations arising under this Agreement shall bear interest at the rate of Thirteen percent (13%) per annum computed on the actual number of days elapsed in a 360-day year. Any unpaid interest shall be added to the outstanding principal balance of the Loan and shall bear interest as well. 1 1.3.2. Interest Payment on the Loan shall be due and payable on the last day of each month up to and including the Due Date of the Loan provided such day is a Business Day ("Business Day"). Business Day shall mean any day other than Saturday, Sunday, or any other day on which commercial banks located in the State of New York are required or authorized by law to be closed for business. In the event that the date upon which payment is due is not a Business Day, then payment shall be made on the earliest preceding Business Day, and any such earlier payment shall not change the manner in which interest is calculated pursuant to this Agreement. 1.3.3. The "Interest Rate Factor" shall be calculated by dividing the annual interest rate of 13% by 360 days and then multiplying the resulting quotient by the Number of Elapsed Days. The "Number of Elapsed Days" shall be determined respectively for each month an Interest Payment is due by the number of days from the last day of the previous month (excluding such last day of the month), up until and including the last day of the month in which the Interest Payment is due. The "Number of Elapsed Days" shall be determined in such a manner up until the Due Date of the Loan. 1.3.4. The "Interest" shall be calculated by multiplying the applicable Interest Rate Factor by the outstanding principal balance of the Loan as of the date each Interest payment is due, unless there has been a modification of the principal balance during such period (such as prepayment), in which event interest will be calculated based on outstanding balances from time to time. 1.3.3. Borrowers shall pay interest on any overdue installment of principal and/or interest for the period for which such payment is overdue at the rate of eighteen percent (18%) per annum. Nothing contained herein shall be deemed to require the payment of interest at a rate in excess of the maximum rate permitted by applicable law. In the event that the amount required to be paid hereunder for any period exceeds the maximum rate permitted by law, such amounts shall be automatically reduced for such period to the maximum rate permitted by applicable law. 1.3.4. The Borrowers shall compensate the Lender, upon the Lender's delivery of a written demand therefor to the Borrowers (which demand shall, absent manifest error, be final and conclusive and binding upon all of the parties hereto) for all reasonable losses, expenses and liabilities that the Lender sustains as a consequence of any default by the Borrowers in repaying the Loan or any other amounts owing hereunder when required by the terms of this Agreement. 1.3.5. Intentionally left blank. 1.4. Repayment of Principal. Except as otherwise provided in this Agreement, repayment of principal shall be due and payable in one lump sum on November 30, 2004 (the "Due Date"). 1.5. Prepayment. The Borrowers may prepay up to Sixty Two Thousand Five Hundred ($62,500) Dollars in principal on each date that interest is due pursuant to this Agreement, without penalty or premium in which case any such prepayments shall be deducted from the outstanding principal balance of the Loan for any Interest payments due thereafter. Borrowers may also prepay all of the principal of the Loan at any time provided such prepayment shall include interest calculated to the date of prepayment plus fifty (50%) percent of the interest that would have been earned had the Loan not been prepaid from the date of such prepayment to the Due Date (the "Yield Maintenance Payment"). It is acknowledged that the Yield Maintenance Payment is intended to compensate Lender for utilizing its credit in order to make the Loan to Borrowers and is not to be deemed additional interest for any purpose. The Yield Maintenance Payment shall also be due in the event of a prepayment as a result of acceleration of the Loan as a result of an Event of Default (See Section 1.6). 2 1.6. Acceleration. Notwithstanding the other provisions of this Agreement, immediately upon the occurrence of any Event of Default (as defined in Section 5.1) and during any continuance thereof, the Lender may declare the Loan, all interest thereon and all other amounts and obligations payable to be forthwith due and payable to the Lender or may take any other action as provided in Section 5.2 and 5.3 of this Agreement. 1.7. Payment Procedures. All payments made by Borrowers under this Agreement shall be made to the Lender at its office at the address indicated in Section 7.3 and shall be made in U.S. dollars. All payments received by the Lender shall be applied first to fees and expenses (if any), then to accrued interest, then to the Yield Maintenance Payment and lastly, to unpaid principal in accordance with the terms of this Agreement. To the extent not previously repaid, all principal and interest outstanding with respect to the Loan, plus any accrued but unpaid expenses and fees or other obligations arising under this Agreement, shall be due and payable in full on the "Due Date." ARTICLE II COLLATERAL 2.1. Collateral. Borrowers hereby pledge, assign and grant to Lender, as security for the performance of this Agreement, the Note and any other documents executed in connection herewith (the "Loan Documents"), and the repayment of the Loan and for all other indebtedness, liabilities and obligations of Borrowers (primary, secondary, direct, contingent, related, unrelated, sole, joint or several) due or to become due to Lender or which may be contracted for or acquired hereafter (collectively, the "Obligations"), a security interest under the Uniform Commercial Code in effect in the States of New Jersey and New York in all Accounts, Inventory, General Intangibles, (including but not limited to trade names, brand names (such as Brooklyn Cheesecake), recipes and customer lists), Chattel Paper, Instruments, Documents and Equipment (whether or not constituting fixtures) and any other asset now owned or hereafter acquired by Borrowers, together with all cash and non-cash proceeds, products, distributions, additions, accessions, substitutions, exchanges and replacements thereof, (collectively, the "Collateral"). 2.2. Further Assurances. Borrowers shall from time to time promptly take all actions (and execute, deliver and record all instruments and documents) necessary or reasonably appropriate or requested by Lender, to perfect and protect any security interest granted or purported to be granted hereby or to enable Lender to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral. 2.3. Attorney-In-Fact. Borrowers hereby irrevocably appoint Lender as its attorney-in-fact, in the name of Borrowers or otherwise, from time to time in Lender's discretion and at Borrowers' expense, to take any action and to execute, deliver and record any instruments or documents which Lender may deem necessary or advisable in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Lender to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral including, without limitation, financing or continuation statements under the Uniform Commercial Code, and amendments thereto. Lender shall not, in its capacity as such attorney-in-fact, be liable for any acts or omissions, nor for any error of judgment or mistake of fact or law, but only for gross negligence or willful misconduct. All authorizations and agencies herein contained with respect to the collateral are irrevocable powers coupled with an interest. 3 ARTICLE III REPRESENTATIONS AND WARRANTIES Borrowers hereby make the following representations and warranties, which shall be continuing in nature and remain in full force and effect until the Obligations are satisfied in full: 3.1. Existence and Power. Brooklyn Cheesecake and JMS are corporations duly organized, validly existing and in good standing in all material respects under the laws of the jurisdiction of their respective incorporation or organization and have all requisite power and authority to own and operate their assets and to conduct their business as now or proposed to be carried on, and are duly qualified, licensed and in good standing to do business in all jurisdictions where their ownership of property or the nature of their business requires such qualification or licensing. Borrowers have the full power and authority to execute, deliver and perform this Agreement, the Note, financing statements, and all other agreements, instruments, and documents evidencing or securing the Loan (collectively as "Loan Documents"). 3.2. Authorization and Enforceability. Borrowers have been duly authorized to execute, deliver and perform the Loan Documents by all appropriate action of their respective Boards of Directors or otherwise as may be required by law, charter or other organizational documents or agreements. Each of the Loan Documents, when executed and delivered by Borrowers, will constitute the legal, valid and binding obligation of Borrowers, enforceable in accordance with their respective terms. 3.3. No Defaults or Violations. There does not exist any Event of Default (as that term is defined in Section 5.1) under this Agreement or any material default or violation by Borrowers of or under any of the terms, conditions or obligations of: (a) Brooklyn Cheesecake and JMS articles or certificate of incorporation, regulations or bylaws or other organizational documents as applicable; (b) any indenture, mortgage, deed of trust, franchise, permit, contract, agreement, or other instrument to which Brooklyn Cheesecake and JMS are a party or by which they or any of their properties may be bound; or (c) any law, regulation, ruling, order, injunction, decree, condition or other requirement applicable to or imposed upon Borrowers by any law, or by the action of any court or other governmental authority or agency; and the execution, delivery and performance of the Loan Documents will not result in any such default or violation, nor are any approvals, authorizations, licenses, waivers or consents, governmental (foreign, federal, state or local) or non-governmental, under the terms of contracts or otherwise, required to be obtained by Borrowers by reason of or in connection with their execution, delivery and performance of any of the Loan Documents. Notwithstanding anything else to the contrary contained in this Agreement or any Loan Document, Lender acknowledges that Borrowers have informed Lender that Borrowers may pay their creditors on a 90-day or more basis, and that such event shall not constitute a breach or an Event of Default with respect to this Agreement or any of the Loan Documents. 3.4. Financial Statements. Borrowers have delivered or caused to be delivered to Lender their most recent balance sheet, income statement and statement of cash flows as of December 31, 2004 (the "Financial Statements"). The Financial Statements are true, accurate and complete in all material respects and fairly present the financial condition, cash flow and the results of Borrowers' operations as of the respective dates thereof and for the periods therein referred to, all in accordance with generally accepted accounting principles in effect from time to time ("GAAP"), consistently applied from period to period subject in the case of interim statements to normal year-end adjustments and excluding disclosures normally required by GAPP. Borrowers do not have any liabilities or obligations of any nature (whether or not of the nature required to be reflected in a balance sheet prepared in accordance with GAAP) that are not reflected on the Financial Statements (including, without limitation, any liabilities relating to environmental, occupational and health matters or ERISA) except for current liabilities (within the meaning of GAAP) which have been incurred since the date thereof in the ordinary course of business and consistent in nature and amount with Borrowers' operating history. Notwithstanding anything else to the contrary contained in this Agreement or any Loan Document, Lender acknowledges that Borrower has informed Lender that Borrower has incurred liabilities as set forth on Schedule 4.2.1, and the existence of such debt shall not constitute a breach or an Event of Default of this Agreement or any of the Loan Documents. 4 3.5. No Material Adverse Change. Since the date of their most recent Financial Statements, Borrowers have not suffered any damage, destruction or loss, and no event or condition has occurred or exists, which has resulted or could result in a material adverse change in its business, assets, operations, financial condition or results of operation. 3.6. Title to Assets; Existing Liens. Borrowers have good and marketable title to their assets, free and clear of all liens and encumbrances, except for (a) current taxes and assessments not yet due and payable, (b) liens and encumbrances, if any, reflected or noted in their most recent Financial Statements, (c) assets disposed of by Borrowers since the date of their most recent Financial Statements in the ordinary course of business, consistent with past practice, and (d) the liens and encumbrances described on Schedule 3.6. 3.7. Litigation. Except as set forth in Schedule 3.7, there are no actions, suits, proceedings or governmental investigations pending or, to the knowledge of Borrowers, threatened, against Borrowers or any of their properties which could result in a material adverse change in Borrowers' business, assets, operations, financial condition or results of operations and there is no basis known to Borrowers for any action, suit, proceeding or investigation which could result in such a material adverse change. 3.8. Tax Returns. Borrowers have filed all returns and reports that are required to be filed by them in connection with any federal, state or local tax, duty or charge levied, assessed or imposed upon them or any of their properties or that they are required to withhold and pay over including, without limitation, unemployment, social security and similar taxes, and all of such taxes have been paid or adequate reserves therefor have been set aside or other provisions therefor have been made. 3.9. Intellectual Property. Borrowers own or are licensed to use all patents, patent rights, trademarks, trade names, service marks, copyrights, intellectual property, technology, know-how and processes necessary for the conduct of their business as currently conducted that are material to Borrowers' condition (financial or otherwise), business or operations. Lender acknowledges that the names "Brooklyn Cheesecake Company, Inc." and "Brooklyn Cheesecake and Desserts Company" are not registered or protected under state or federal laws, but Borrowers represent that they have instituted the process of registering and trade marking said names, and Borrowers covenant that they will pursue said process with diligence. 3.10. Intentionally left blank. 3.11. Disclosure. None of the Loan Documents contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements contained in the Loan Documents not misleading. There is no fact known to Borrowers which materially and adversely affects or, so far as Borrowers can now foresee, might materially and adversely affect Borrowers' business, assets, operations, financial condition or results of operation and which have not otherwise been fully set forth in this Agreement or otherwise disclosed in writing to Lender. 5 3.12. Places of Business. The locations of Borrowers' chief executive office and other places of business are shown on Schedule 3.12. Borrowers covenant not to establish any new, or discontinue any existing, place of business without giving Lender at least 30 days' prior notice. 3.13. Intentionally left blank. 3.14. Subsidiaries, Affiliates, and Other Investments. Except as shown on Schedule 3.14, Borrowers have no subsidiaries or affiliates (other than its own shareholders); nor do Borrowers have any investment in any other person or entity. ARTICLE IV COVENANTS 4.1. Affirmative Covenants. Borrowers agree that from the date of execution of this Agreement until the Obligations are satisfied in full, Borrowers shall (and shall cause each of its majority-owned subsidiaries, if any, to): 4.1.1. Payments of Taxes and Other Charges. Pay and discharge when due all taxes, assessments, charges, levies and other liabilities imposed upon Borrowers, their income, profits, properties or business, except those which currently are being contested in good faith by appropriate proceedings and for which Borrowers shall have set aside adequate reserves or made other adequate provisions acceptable to Lender in its sole discretion. 4.1.2. Maintenance of Existence, Operation and Assets; Inspection. Do all things necessary to maintain, renew and keep in full force and effect their respective organizational existence and all rights, permits and franchises necessary to enable them to continue their business; continue in operation in substantially the same manner as at present; conduct business and enter into transactions only in the ordinary course, consistent with past practice; keep their properties in good operating condition and repair; make all necessary and proper repairs, renewals, replacements, additions and improvements thereto; and permit representatives of Lender to inspect Borrowers' properties and its books and records and to make extracts therefrom at all reasonable times during normal business hours. 4.1.3. Insurance. Keep their assets insured with responsible insurance companies against those risks and in such amounts as are commonly insured against by companies in similar businesses and owning similar assets. At Lender's request, Borrowers shall have Lender named as loss payee on all hazard insurance policies covering the Collateral and shall have Lender named as an additional insured on liability policies. Borrowers shall deliver to Lender such certificates, endorsements, and other evidence of such insurance as Lender may reasonably request. 4.1.4. Compliance with Laws. Comply materially with all laws applicable to Borrowers and to the operation of their respective business (including, without limitation, any statute, rule or regulation relating to employment practices and employee benefits and to environmental, occupational and health standards and controls). 4.1.5. Financial Reports. Deliver promptly such financial statements and reports as Lender may reasonably request including, without limitation, annual financial statements audited or reviewed by independent certified public accountants, quarterly interim financial statements prepared by Borrowers' management and within ten (10) days after the end of each calendar month, a monthly statement of cash flow and accounts receivable certified as accurate by the CEO of Borrowers. All such financial data shall be true, accurate and complete in all material respects and shall be prepared in accordance with GAAP consistently applied, subject, in the case of interim statements, to normal year-end adjustments and excluding disclosures normally required by GAAP. 6 4.1.6. Additional Reports. Provide prompt notice to Lender of the occurrence of any of the following (together with a description of the action which Borrowers propose to take with respect thereto): (a) any Event of Default or potential Event of Default hereunder or under any of the Loan Documents, (b) any litigation filed by or against Borrowers, (c) any event which might result in a material adverse change in Borrowers' business, assets, operations, financial condition or results of operation; and provide to Lender any other reports reasonably requested thereby. 4.1.7. Use of Proceeds. Use of the proceeds of the Loan only for the purposes specified in Section 1.1 above. 4.1.8. Indemnification. Borrowers agree to pay, and to hold Lender harmless from, any and all liabilities, costs and expenses (including, without limitation, reasonable legal fees and expenses) (i) with respect to, or resulting from, any delay in paying any and all excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral, (ii) with respect to, or resulting from, any delay in complying with any requirement of law applicable to any of the Collateral or (iii) in connection with any of the transactions contemplated by this Agreement or the Loan Documents. In any suit, proceeding or action brought by Lender to enforce the provisions of this Agreement, Borrowers will save, indemnify and keep Lender harmless from and against all expense, loss or damage suffered by reason of any defense, set off, counterclaim, recoupment or reduction or liability whatsoever of the account of Borrowers or obligor thereunder, arising out of a breach by Borrowers of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account of Borrowers or obligor or its successors. 4.1.9. Further Identification of Collateral. Borrowers will furnish to Lender from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Lender may reasonably request, all in reasonable detail. 4.1.10 Notices. Borrowers will advise Lender, in reasonable detail, at its address set forth below, (i) of any encumbrance on, or claim asserted against, any of the Collateral and (ii) of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the encumbrances created hereunder. 4.2. Negative Covenants. Borrowers covenant and agree that from the date of execution of this Agreement until the Obligations are satisfied in full, Borrowers shall not (and shall cause each of its majority-owned subsidiaries, if any, not to), without Lender's prior written consent: 4.2.1. Indebtedness. Except as provided in Schedule 4.2.1 of this Agreement, maintain, create or incur any indebtedness for borrowed money other than the Loan and any subsequent indebtedness to Lender, 4.2.2. Liens and Encumbrances. Except for liens in favor of Lender create, assume or permit to exist any mortgage, pledge, encumbrance or other security interest or lien upon any assets now owned or hereafter acquired by Borrower. Notwithstanding anything else to the contrary contained in this Agreement or any of the Loan Documents, (i) Borrowers may lease equipment under which the lessor of such equipment may maintain a security interest in the equipment leased, and (ii) Borrowers may purchase equipment under which the seller of such equipment may maintain a security interest in the equipment purchased by the Borrowers. 7 4.2.3. Guarantees. Guarantee, endorse or become contingently liable for the obligations of any person or entity, except in connection with the endorsement and deposit of checks in the ordinary course of business for collection. 4.2.4. Merger; Disposition of Assets. Merge or consolidate with or into any person or entity or lease, sell, transfer or otherwise dispose of any material assets, whether now owned or hereafter acquired, other than in the normal course of business and consistent with past practices. 4.2.5. Change in Business, Management or Ownership. Make or permit any material change in the nature of Borrower's business as carried on as of the date hereof or make any other major decisions which effect the business of Borrower other than day to day operation decisions. 4.2.6. Intentionally left blank. 4.2.7. Investments. Purchase or hold beneficially any stock, other securities or evidence of indebtedness or make any loans or advances to, or make any investment or acquire any interests in, any other person or entity 4.2.8. Related Party Loans. Repay any loans payable to officers, shareholders or directors of Borrowers. For so long as no Event of Default has occurred, notwithstanding anything else to the contrary contained in this Agreement or any of the Loan Documents, the Borrower may pay to (i) Ronald L. Schutte the "Minimum Amount Due," or past due amounts thereof, as required under the American Express Business Capital Line and in connection with the Revolving Credit Note to Ronald L. Schutte listed in Schedule 4.2.1 and (ii) Anthony Merante the "Minimum Payment Due," or past due amounts thereof, as required under the Fleet Business Credit Express and in connection with the Revolving Credit Note to Anthony Merante listed in Schedule 4.2.1. ARTICLE V DEFAULT 5.1. Events of Default. Events of default (an "Event of Default") are as follows: 5.1.1. Any material default in the Note or any of the other Loan Documents. 5.1.2 (a) Borrowers fail to make any payment of principal or interest payable under this Agreement or Loan Documents when due; or (b) Borrowers fail to fully perform any material term, condition or obligation as provided in this Agreement or Loan Documents that remains uncured for five (5) business days after notice from Lender of such default; or (c) Brooklyn Cheesecake or JMS file for bankruptcy or reorganization, are generally not paying their debts in accordance with past business practice, make an assignment for the benefit of creditors, a trustee or receiver is appointed over Brooklyn Cheesecake or JMS or any of their property, bankruptcy, liquidation or other similar proceedings is commenced against Brooklyn Cheesecake or JMS, or a writ or warrant or similar process is issued against Brooklyn Cheesecake or JMS or their property; or 8 (d) Brooklyn Cheesecake or JMS no longer remain a corporation in good standing in the State of its organization, or (e) The death, disability, resignation or removal of Ronald L. Schutte ("Schutte"), as CEO of Borrowers, unless in the case of death or disability there exists "Key Man" or disability insurance policies with proceeds utilized to pay all amounts due the Lender within a reasonable period of time. In addition, the Lender must be named as an additional insured and/or beneficiary on such policies, or (f) The inability of Borrowers to pay any of their debts (in accordance with past business practice) or taxes as they become due, or (g) The filing of a summary proceeding by Borrowers' landlord or of any lawsuit in excess of $20,000 against Brooklyn Cheesecake and/or JMS that is not removed or bonded within 15 days of institution of such lawsuit. 5.2. Remedies on Default: . 5.2.1. Proceeds. If an Event of Default under this Agreement shall occur and be continuing or if any portion of the Obligations has become due and remain unpaid and if so requested by Lender (a) all proceeds received by Borrowers consisting of cash, checks and other near-cash items shall be held by Borrowers in trust for Lender, and shall, forthwith upon receipt by Borrowers, be turned over to Lender in the exact form received by Borrowers (duly endorsed by Borrowers to Lender, if required), and (b) any and all such proceeds received by Lender (whether from Borrowers or otherwise) may, in the sole discretion of Lender, be held by Lender for its own benefit as collateral security for, and/or then or at any time thereafter may be applied by Lender against the Obligations (whether matured or unmatured), such application to be in such manner as set forth in the Note and Borrowers waive any right of offset they may otherwise have. Any balance of such proceeds remaining after the Obligations shall have been paid in full and Lender shall have no further obligations or commitments under the Note shall be paid over to Borrowers or to whomsoever may be lawfully entitled to receive the same. 5.2.2. Remedies. If any Event of Default under this Agreement shall have occurred and be continuing or from and after the date that any portion of the Obligations has become due and remains unpaid, Lender may exercise in addition to all other rights and remedies granted to them in this Agreement and in any Loan Documents, evidencing or relating to the Obligations, all rights and remedies of a secured party under the UCC. Without limiting the generality of the foregoing, in the event of such an Event of Default as described in the preceding sentence, Lender, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon Borrowers or any other person (all and each of which demands, defenses, advertisements and notices are hereby waived) may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing) in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Lender shall have the right upon any 9 such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption which right or equity is hereby waived or released. Borrowers further agree, at Lender's request, and to the extent that Borrowers are able to do so, to assemble the Collateral and make it available to Lender at places, which Lender shall reasonably select, whether at Borrowers' premises or elsewhere. Lender shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of Lender hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the obligations, in such manner as is set forth in the Note and only after such application and after the payment by Lender of any other amount required by any provision of law, including, without limitation, Section 9-504(1)(c) of the UCC, need Lender account for surplus, if any, to Borrowers. To the extent permitted by applicable law, Borrowers waive all claims, damages and demands it may acquire against Lender arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least ten (10) days before such sale or other disposition. Borrowers shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the obligations and the fees and disbursements of any attorneys employed by Lender to collect such deficiency. 5.2.3. No Subrogation. Notwithstanding any payment or payments made by Borrowers hereunder, or any set off or application of funds of Borrowers by Lender, or the receipt of any amounts by Lender with respect to any of the Collateral, Borrowers shall not be entitled to be subrogated to any of the rights of Lender against any other collateral security held by Lender for the payment of the Obligations until all amounts owing to Lender on account of the Obligations or commitments under the Note have been paid in full. If any amount shall be paid to Lender on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by Borrowers in trust for Lender, and shall, forthwith upon receipt by Borrowers, be turned over to Lender in the exact form received by Borrowers (duly endorsed by Borrowers to Lender, if required) to be applied against the Obligations, whether matured or unmatured, in such manner as set forth in the Note, this Agreement and the Loan Documents. 5.2.4. Appointment to Borrowers Board of Directors. Within 10 days after a default under the Loan Documents, Brooklyn Cheesecake and JMS shall take actions to cause the removal and/or resignation of a sufficient number of directors and to replace such directors with directors nominated by the Lender in order that there shall be a majority of directors on their respective Boards of Directors that are nominated by the Lender, provided that nominees of the Lender are qualified to serve as directors and there remains on the Boards of Directors a sufficient number of independent directors in order to be in compliance with law. It is acknowledged that this provision is intended to facilitate Lender's execution on the Collateral if an Event of Default occurs. ARTICLE VI DISPUTE RESOLUTION 6.1. Resolution of Disputes. 10 6.1.1. Jurisdiction; Process. The parties hereto irrevocably submit to the non-exclusive jurisdiction of any New York state or United States Federal Court sitting in New York, New York over any suit, action or proceeding arising out of or relating to this Agreement. The parties hereto further consent to process being served in any such suit, action or proceeding by mailing a certified copy thereof, return receipt requested, to said party at its respective address referred to in Section 7.3. Each party agrees that such service shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and shall, to the full extent permitted by law, be taken and held to be valid personal service upon and personal delivery to it. Nothing in this paragraph shall affect or limit any right to serve process in any manner permitted by law, to bring proceedings in the courts of any jurisdiction or to enforce in any lawful manner a judgment obtained in any other jurisdiction. Borrowers irrevocably waive, to the full extent permitted by law, any objection which it may have to the laying of venue of any such suit, action or proceeding brought in any such court any claim that any such suit, action or proceeding has been brought in an inconvenient forum. So long as this Agreement remains in effect, Borrowers will at all times have an authorized agent in New Jersey upon whom process may be served in any action or proceeding arising out of or relating to this Agreement. 6.1.2. Performance Pending Resolution. Each party shall be required to continue to perform its respective obligations under the Loan Documents pending final resolution of any Dispute, unless to do so would be impossible or impracticable under the circumstances. ARTICLE VII MISCELLANEOUS 7.1. Expenses. Borrowers shall pay to Lender or at Lender's direction, upon execution of this Agreement, and otherwise on demand, all costs and expenses incurred by Lender in connection with (a) the preparation, negotiation and closing of this Agreement, Loan Documents and any related documents, and any modifications hereto or thereto, it being agreed that reimbursement for said legal fees incurred by Lender exclusive of disbursements shall not exceed $5,000, and (b) instituting, maintaining, preserving, enforcing and foreclosing the security interest in any of the Collateral, whether through judicial proceedings, arbitration or otherwise, or in defending or prosecuting any actions, arbitrations or proceedings arising out of or relating to this Agreement or the Loan Documents including, without limitation, reasonable fees and expenses of counsel, expenses for auditors, appraisers and environmental consultants, lien searches, recording and filing fees and taxes. 7.2. Amendments, Indulgences, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by Borrower herefrom shall in any event be effective unless the same shall be in writing and signed by Lender, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure or delay on the part of Lender in the exercise of any right, power, or remedy under this Agreement or any of the other Loan Documents shall under any circumstances constitute or be deemed to be a waiver thereof, or prevent the exercise thereof in that or any other instance. 7.3. Notices. All notices given hereunder shall be in writing and deemed validly given (a) three (3) business days after sent, postage prepaid, by certified mail, return receipt requested, (b) one (1) business day after sent, charges paid by the sender, by Federal Express Next Day Delivery or other guaranteed delivery service, (c) when confirmation of transmission by facsimile during normal business hours is received, or (d) when delivered by hand, upon 11 delivery, in each case to the intended recipient at its address shown below or to such other address, or in care of such other person, as either party shall hereafter specify to the other from time to time by due notice: If to Borrowers: Brooklyn Cheesecake & Desserts Company, Inc. 20 Passaic Avenue Fairfield, New Jersey 07004 Attention: Ron Schutte Fax No.: (973) 808-0203 J.M. Specialties, Inc. Creative Bakeries, Inc. 20 Passaic Avenue Fairfield, New Jersey 07004 Attention: Ronald L. Schutte Fax No.: (973) 808-0203 If to Lender: Ronald L. Schutte 360 Hollywood Avenue Yonkers, New York 10707 Fax No.: (914) 961-3896 7.4. Interpretation. Except as otherwise indicated, all agreements defined herein refer to the same as from time to time amended or supplemented or the terms thereof waived or modified in accordance herewith and therewith. Any provision hereof found to be illegal, invalid or unenforceable for any reason whatsoever shall not affect the legality, validity or enforceability of the remainder hereof. Except as otherwise provided for in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 7.5. Entire Agreement. This Agreement, and all agreements and instruments to be delivered by the parties pursuant hereto or in connection herewith, represent the entire understanding of the parties with respect to the subject matter hereof, and supersede all other prior and contemporaneous agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. 7.6. Governing Law. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns, and construed and interpreted according to the laws of the State of New York. 7.7. Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument. 12 7.8. Continuing Security Interest. This Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until the payment in full of the obligations and all other amounts payable under this Agreement and the Loan Documents. Upon any assignment or transfer by Lender, the transferee shall thereupon become vested with all the benefits in respect thereof granted to Lender herein or otherwise. Upon the payment in full of the Obligations and all other amounts payable under this Agreement, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to Borrowers. Upon any such termination, Lender will, at Borrowers' expense, execute and delivery to Borrowers such documents as Borrowers shall reasonably request to evidence such termination. 7.9 Limitation on Duties Regarding Preservation of Collateral. Lender's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the UCC or otherwise, shall be to deal with it in the same manner as Lender deals with similar property for its own account. Neither Lender, nor any of their respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of Borrowers or otherwise. 7.10. Paragraph Headings. The paragraph headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. NO FURTHER TEXT ON THIS PAGE SIGNATURE PAGE FOLLOWS 13 IN WITNESS WHEREOF, the parties have executed or caused to be executed this Agreement as of the day and year first above written. Borrowers: Brooklyn Cheesecake & Desserts Company, Inc., formerly known as Creative Bakeries, Inc. By: ------------------------------ Ronald L. Schutte Title: Chief Executive Officer J.M. Specialties, Inc., A New Jersey Corporation By: ------------------------------ Ronald L. Schutte Title: Chief Executive Officer & President Lender: ------------------------------ Ronald L. Schutte IN WITNESS WHEREOF, on behalf of and upon due authorization from the Board of Directors of Brooklyn Cheesecake & Desserts Company, Inc., formerly known as Creative Bakeries, Inc. ("Corporation"), the director below has read and understands, and hereby approves, confirms, and ratifies this Agreement on behalf of the Board of Directors as of the date first written above; and the director below further approves, confirms, and ratifies on behalf of the Board of Directors the execution and delivery of this Agreement and all the acts by Schutte performed on behalf of the Corporation in connection with this Agreement. By: ---------------------------- Name: Carmelo L. Foti Title: Director State of New Jersey, County of s s : On the day of in the year before me, the undersigned, personally appeared Ronald L. Schutte personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument. - ---------------------------------------------------------- (signature and office of individual taking acknowledgment) 14 SCHEDULES AND EXHIBITS Exhibit 1.2 Note Schedule 3.6 Liens and Encumbrances Schedule 3.7 Litigation Schedule 3.12 Places of Business Schedule 3.14 Subsidiaries and Affiliates; Other Investments Schedule 4.2.1 Indebtedness for Borrowed Money 15 Exhibit 1.2 Secured Promissory Note 16 Schedule 3.6 Liens and Encumbrances Voicemail System 17 Schedule 3.7 Litigation None 18 Schedule 3.12 Places of Business 20 Passaic Avenue Fairfield, New Jersey 07004 19 Schedule 3.14 Subsidiaries and Affiliates; Other Investments J.M. Specialties, Inc. A New Jersey Corporation is a wholly owned subsidiary of Brooklyn Cheesecake & Desserts Company, Inc., formerly known as Creative Bakeries, Inc. 20 Schedule 4.2.1 Indebtedness for Borrowed Money 1. Promissory Note payable to Ronald L. Schutte in the amount of $88,000.00. 2. Promissory Note payable to Ronald L. Schutte in the amount of $54,000.00. 3. Promissory Note payable to Anthony J. Merante in the amount of $28,000.00. 4. Revolving Credit Note payable to Ronald L. Schutte in the amount of $50,000.00, representing funds loaned to Borrower from Ronald L. Schutte's and Creative Bakers's Inc.'s American Express Business Capital Line. 5. Revolving Credit Note payable to Anthony Merante and Anthony J. Merante CPA in the amount of $50,000.00 loaned to Borrower from Anthony Merante's and Anthony J. Merante CPA's Fleet Business Capital Express line of credit. 6. Promissory Note payable to Anthony J. Merante in the amount of $8,910.74. 21 EX-10.31 4 v016391_ex10-31.txt Exhibit 10.31 SECURED PROMISSORY NOTE (the "Note") Dated to be Effective as of September 1, 2004 Principal Amount: $317,000 A. TERMS OF LOAN FOR VALUE RECEIVED, BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. formerly know as CREATIVE BAKERIES, INC., a New York corporation ("BROOKLYN CHEESECAKE & DESSERTS"), and J.M. SPECIALTIES, INC., A NEW JERSEY CORPORATION ("JMS") (BROOKLYN CHEESECAKE & DESSERTS and JMS are collectively referred to as the "BORROWERS"), with offices at 20 Passaic Avenue, Fairfield, New Jersey 07004, jointly and severally promise to pay to the order of RONALD L. SCHUTTE (the "LENDER"), residing at 360 Hollywood Avenue, Yonkers, New York 10707, or at such other place as the Lender may designate in writing, the principal sum of THREE HUNDRED SEVENTEEN THOUSAND DOLLARS ($317,000), (the "Loan" or "Principal"). 1. INTEREST; PREPAYMENT. (a) Borrower will pay Interest on the unpaid Principal amount hereof, computed on the basis of the actual number of days elapsed in a 360-day year, at a rate which shall be equal to thirteen percent (13.00%) per annum (the "Interest Rate"). (b) The "Interest Rate Factor" shall be calculated by dividing the annual Interest Rate of 13% by 360 days and then multiplying the resulting quotient by the Number of Elapsed Days. The "Number of Elapsed Days" shall be determined by the number of days from the last day of the previous month (excluding such last day of the previous month) up until and including the date upon which the Interest will be due. The "Interest" shall be calculated by multiplying the applicable Interest Rate Factor by the outstanding Principal balance of the Loan as of the date each Interest payment is due unless there has been a modification of the Principal balance during such period (such as by a payment) in which event Interest will be calculated based on the outstanding Principal balances from time to time. Interest on the Loan shall be due and payable on the last day of each month up to and including the Due Date of the Loan provided such day is a Business Day ("Business Day"). Business Day shall mean any day other than Saturday, Sunday, or any other day on which commercial banks located in the State of New York are required or authorized by law to be closed for business. Borrower will pay Interest on any overdue installment of Principal or Interest for the period for which overdue, on demand, at a rate equal to eighteen percent (18.00%) per annum. In no event shall Interest exceed the maximum legal rate permitted by law, and any Interest that exceeds the maximum legal rate shall be reduced to the maximum legal rate permitted by law. All payments, including insufficient payments, shall be credited, regardless of their designation by Borrowers, first to collection expenses due hereunder, then to outstanding late charges, then to Interest due and payable but not yet paid, then to the Yield Maintenance Payment (if any) and the remainder, if any, to Principal. All payments by Borrowers or any endorser of this Note on account of Principal, Interest or fees hereunder shall be made in lawful money of the United States of America. Page 1 of 5 (c) Prepayment. The Borrowers may prepay up to (Sixty Two Thousand Five Hundred ($62,500) Dollars in Principal on each date that Interest is due pursuant to this Agreement, without penalty or premium. Borrowers may also prepay all of the Principal of the Loan at any time provided such prepayment shall include Interest calculated to the date of prepayment plus fifty (50%) percent of the Interest that would have been earned had the Loan not been prepaid from the date of such prepayment to the Due Date of the Loan (the "Yield Maintenance Payment"). It is acknowledged that the Yield Maintenance Payment is intended to compensate Lender for utilizing its credit in order to make the Loan to Borrowers and is not to be deemed additional Interest for any purpose. The Yield Maintenance Payment shall also be due in the event of a prepayment as a result of acceleration of the Loan as a result of an Event of Default. 2. DUE DATE. The Loan together with Interest as provided herein shall be due on November 30, 2004 (the "Due Date"). B. REPRESENTATIONS AND WARRANTIES 3. Borrowers represents and warrant to the Lender that: (a) The Note is legal, valid, and contains binding obligations of Borrowers enforceable against Borrowers in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights generally and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding therefor may be brought. (b) Borrowers are not in default in the performance, observance or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument to which it is a party, except where such default would not have a material adverse effect on the assets, liabilities or financial condition of Borrowers (a "Material Adverse Effect"). (c) There is no pending or threatened action or proceeding against or affecting Borrowers before any court, governmental agency, or arbitrator which is reasonably likely to, in any one case or in the aggregate, have a Material Adverse Effect or materially and adversely affect the ability of Borrowers to perform their obligations under this Note. C. EVENTS OF DEFAULT 4. If any of the following events shall occur and be continuing: (a) Borrowers shall fail to make any payment of Principal or Interest on this Note when due, except that Lender may either prospectively or retroactively waive the date upon which Interest is due in which case unpaid Interest on Principal, including amounts on overdue installments of Principal and Interest, shall be added to Principal and provided that such waiver is given, such non payment of Principal shall not be considered an event of default; (b) Borrowers shall be in material default in the performance or observance of any covenant or agreement contained herein or in the Loan and Security Agreement securing this Loan following five (5) business days' written notice thereof; Page 2 of 5 (c) Any representation or warranty made by or on behalf of Borrowers in this Note, or in the Loan and Security Agreement or in any other agreement, instrument, or statement delivered to the Lender by or on behalf of Borrowers shall at any time prove to have been incorrect when made in any material respect; (d) Brooklyn Cheesecake & Desserts or JMS no longer remain corporations in good standing in the states of their respective organizations; (e) The death, disability, resignation or removal of Ronald L. Schutte ("Schutte"), as CEO and/or President of Borrowers, unless in the case of death or disability there exists "Key Man" or disability insurance policies with proceeds utilized to pay all amounts due the Lender within a reasonable period of time. In addition, the Lender must be named as an additional insured and/or beneficiary on such policies; (f) The inability of Borrowers to pay any of their debts in accordance with past business practice or taxes as they become due; (g) The filing of any lawsuit in excess of $20,000 against Brooklyn Cheesecake & Desserts and/or JMS that is not removed or bonded within 15 days of institution of such lawsuit; (h) Sales fall below $600,000 in any calendar quarter; (i) Cash and accounts receivable are below $125,000; (j) Any judgment against Brooklyn Cheesecake & Desserts or JMS or any attachment, levy or execution against any of their properties for any material amount shall remain unpaid, or shall not be released, discharged, dismissed, stayed or fully bonded for a period of fifteen (15) days or more after its entry, issue or levy, as the case may be; (k) Brooklyn Cheesecake & Desserts or JMS shall make an assignment for the benefit of creditors, or a trustee, receiver or liquidator shall be appointed for either of them or for any of their property; or (l) The commencement of any proceedings by Brooklyn Cheesecake & Desserts or JMS under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt, receivership, liquidation or dissolution law or statute or the commencement of any such proceedings without the consent of Borrower and such involuntary proceedings shall continue undischarged for a period of sixty (60) days; then, and in any such event, (with each of the foregoing events to constitute an "EVENT OF DEFAULT"), the Lender may declare the entire unpaid Principal amount of this Note and all Interest and fees accrued and unpaid hereon to be immediately due and payable, whereupon the same shall become and be forthwith due and payable, without presentment, demand, offset, protest or notice of any kind, all of which are hereby expressly waived by Borrowers. D. MISCELLANEOUS 5. GOVERNING LAW. This Note shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its rules on conflicts of laws. Page 3 of 5 6. NOTICES, ETC. All notices and other communications provided for under this Note shall be in writing (including telegraphic, telex, and facsimile transmissions) and mailed or transmitted or delivered, if to Borrowers, at Borrower's address indicated above or by facsimile transmission to (973) 808-0203, and if to the Lender, at its address indicated above or by facsimile transmission to (914) 961-3896, or, as to each party, at such other address or facsimile transmission number as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this paragraph. Except as otherwise provided in this Note, all such notices and communications shall be effective either on receipt if delivered by hand, telegraphic, telex and facsimile transmissions, or three (3) Business Days following deposit, postage fully paid, in the mails by certified mail. 7. NO WAIVER. No failure or delay on the part of the Lender in exercising any right, power, or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power, or remedy preclude any other or further exercise thereof or the exercise of any other right, power, or remedy hereunder. The rights and remedies provided herein are cumulative, and are not exclusive of any other rights, powers, privileges, or remedies, now or hereafter existing, at law or in equity or otherwise. 8. COSTS AND EXPENSES. Borrowers shall reimburse the Lender for all costs and expenses incurred by the Lender and shall pay the reasonable fees and disbursements of counsel to the Lender in connection with the preparation of this Secured Promissory Note and any documents related thereto with a maximum amount of $5,000 plus disbursements, and shall also pay all costs including reasonable fees incurred by Lender in enforcement of the Lender's rights hereunder. Borrowers shall also pay any and all taxes (other than taxes on or measured by net income of the holder of this Note) incurred or payable in connection with the execution and delivery of this Note. 9. AMENDMENTS. No amendment, modification, or waiver of any provision of this Note nor consent to any departure by Borrowers therefrom shall be effective unless the same shall be in writing and signed by the Lender and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given. Borrowers hereby waive demand, presentment, notice of dishonor, and protest of nonpayment and agree that any time and from time to time and with or without consideration, Lender may, without notice to or further consent of Borrowers, and without in any manner releasing, or affecting the obligations of Borrowers: (a) release, surrender, waive, add, substitute, settle, exchange, compromise, modify, extend, or grant indulgences with respect to (i) this Note, and (ii) all or any part of any collateral or security for this Note; and (b) grant any extension or other postponements of the time of payment hereof. 10. SUCCESSORS AND ASSIGNS. This Note shall be binding upon Borrowers and its heirs, legal representatives, successors and permitted assigns and the terms hereof shall inure to the benefit of the Lender and its successors and permitted assigns, including subsequent holders hereof. This Note is freely transferable and assignable by the Lender and each subsequent holder hereof and any reference to Lender herein shall be deemed to refer to any subsequent transferee or assignee of this Note. Notwithstanding the foregoing, Borrowers may not assign their rights or obligations under this Note whether by voluntary assignment or transfer, operation of law, or otherwise without the consent of Lender. 11. SEVERABILITY. The provisions of this Note are severable, and if any provision shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall not in any manner affect such provision in any other jurisdiction or any other provision of this Note in any jurisdiction. Page 4 of 5 12. ENTIRE AGREEMENT. This Note sets forth the entire agreement of Borrowers and the Lender with respect to this Note and may be modified only by a written instrument executed by Borrower and the Lender. 13. HEADINGS. The headings herein are for convenience only and shall not limit or define the meaning of the provisions of this Note. 14. JURISDICTION; SERVICE OF PROCESS. Borrowers agree that in any action or proceeding brought on or in connection with this Note (i) the state courts of the State of New York, or (in a case involving diversity of citizenship) the United States District Court in New York, New York, shall have jurisdiction of any such action or proceeding, (ii) service of any summons and complaint or other process in any such action or proceeding may be made by the Lender upon Borrowers by registered or certified mail directed to Borrowers at their address referenced herein, Borrowers hereby waiving personal service thereof, and (iii) within thirty (30) days after such mailing Borrowers shall appear or answer to any summons and complaint or other process, and should Borrowers fail to appear to answer within said thirty (30) day period, it shall be deemed in default and judgment may be entered by the Lender against Borrowers for the amount as demanded in any summons or complaint or other process so served. 15. WAIVER OF THE RIGHT TO TRIAL BY JURY. Borrowers hereby irrevocably waive the right to trial by jury in any action, proceeding, claim, or counterclaim, whether in contract or tort, at law or in equity, in any manner connected with this note or any transactions hereunder. IN WITNESS WHEREOF, Borrowers have caused this Note to be executed and delivered as of the day and year and at the place first above written. BROOKLYN CHEESECAKE & DESSERTS, INC., formerly known as CREATIVE BAKERIES, INC. -------------------------------------------- By: Ronald Schutte, Chief Executive Officer J.M. SPECIALTIES, INC., A NEW JERSEY CORPORATION -------------------------------------------- By: Ronald L. Schutte, CEO & President CONFIRMATION IN WITNESS WHEREOF, on behalf of and upon due authorization from the Board of Directors of Brooklyn Cheesecake & Desserts, Inc., formerly known as Creative Bakeries, Inc. ("Corporation"), the director below has read and understands, and hereby approves, confirms, and ratifies this Note on behalf of the Board of Directors as of the date first written above; and the director below further approves, confirms, and ratifies on behalf of the Board of Directors the execution and delivery of this Note and all the acts by Ronald L. Schutte performed on behalf of the Corporation in connection with this Note. By: ------------------------------ Name: Carmelo L. Foti Title: Director Page 5 of 5 EX-10.32 5 v016391_ex10-32.txt Exhibit 10.32 LOAN AND SECURITY AGREEMENT LOAN AND SECURITY AGREEMENT (the "Agreement"), dated to be effective as of December 1, 2004, (the "Effective Date") by BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC., formerly known as CREATIVE BAKERIES, INC., a New York corporation ("Brooklyn Cheesecake") and J.M. SPECIALTIES, INC., A NEW JERSEY CORPORATION ("JMS") (Brooklyn Cheesecake and JMS are collectively referred to as the "Borrowers"), and RONALD L. SCHUTTE ("Lender") W I T N E S S E T H: WHEREAS, pursuant to this Agreement, the Lender has agreed to make a loan to the Borrowers upon the terms and subject to the conditions set forth herein; WHEREAS, Borrowers executed certain Secured Promissory Note in favor of Lender, dated to be effective as of September 1, 2004 (the "Note"), in the principal amount of $317,000; and WHEREAS, it is a condition to the obligation of the Lender to make the loan to the Borrowers under the Note, that the Borrowers shall have executed and delivered this Agreement to the Lender. NOW THEREFORE, in consideration of the premises and to induce the Lender to accept the Note, and to make the loan to the Borrowers, the Borrowers hereby agree with the Lender as follows: ARTICLE I THE LOAN 1.1. The Loan. Subject to the terms and conditions hereinafter provided, Lender shall lend to Borrowers Three Hundred Seventeen Thousand ($317,000) Dollars (the "Loan"), for the purposes indicated below: The Loan shall be used only for Borrowers operating requirements including but not limited to payment of debt not incurred in ordinary course of Borrowers' business and for no other purpose. 1.2. The Note. The Loan shall be evidenced by the Note substantially in the form attached hereto as Exhibit 1.2, which Note shall be executed by the Borrowers as of the Effective Date. Every term contained in the Note shall be deemed incorporated into this Agreement. To the extent any provision of the Note shall be deemed to be inconsistent with the provisions of this Agreement, however, the provisions of this Agreement shall control. 1.3. Interest 1.3.1. The outstanding principal balance of the Loan and any other obligations arising under this Agreement shall bear interest at the rate of Thirteen percent (13%) per annum computed on the actual number of days elapsed in a 360-day year. Any unpaid interest shall be added to the outstanding principal balance of the Loan and shall bear interest as well. 1 1.3.2. Interest Payment on the Loan shall be due and payable on the last day of each month up to and including the Due Date of the Loan provided such day is a Business Day ("Business Day"). Business Day shall mean any day other than Saturday, Sunday, or any other day on which commercial banks located in the State of New York are required or authorized by law to be closed for business. In the event that the date upon which payment is due is not a Business Day, then payment shall be made on the earliest preceding Business Day, and any such earlier payment shall not change the manner in which interest is calculated pursuant to this Agreement. 1.3.3. The "Interest Rate Factor" shall be calculated by dividing the annual interest rate of 13% by 360 days and then multiplying the resulting quotient by the Number of Elapsed Days. The "Number of Elapsed Days" shall be determined respectively for each month an Interest Payment is due by the number of days from the last day of the previous month (excluding such last day of the month), up until and including the last day of the month in which the Interest Payment is due. The "Number of Elapsed Days" shall be determined in such a manner up until the Due Date of the Loan. 1.3.4. The "Interest" shall be calculated by multiplying the applicable Interest Rate Factor by the outstanding principal balance of the Loan as of the date each Interest payment is due, unless there has been a modification of the principal balance during such period (such as prepayment), in which event interest will be calculated based on outstanding balances from time to time. 1.3.3. Borrowers shall pay interest on any overdue installment of principal and/or interest for the period for which such payment is overdue at the rate of eighteen percent (18%) per annum. Nothing contained herein shall be deemed to require the payment of interest at a rate in excess of the maximum rate permitted by applicable law. In the event that the amount required to be paid hereunder for any period exceeds the maximum rate permitted by law, such amounts shall be automatically reduced for such period to the maximum rate permitted by applicable law. 1.3.4. The Borrowers shall compensate the Lender, upon the Lender's delivery of a written demand therefor to the Borrowers (which demand shall, absent manifest error, be final and conclusive and binding upon all of the parties hereto) for all reasonable losses, expenses and liabilities that the Lender sustains as a consequence of any default by the Borrowers in repaying the Loan or any other amounts owing hereunder when required by the terms of this Agreement. 1.3.5. Intentionally left blank. 1.4. Repayment of Principal. Except as otherwise provided in this Agreement, repayment of principal shall be due and payable in one lump sum on April 30,2005 (the "Due Date"). 1.5. Prepayment. The Borrowers may prepay up to Sixty Two Thousand Five Hundred ($62,500) Dollars in principal on each date that interest is due pursuant to this Agreement, without penalty or premium in which case any such prepayments shall be deducted from the outstanding principal balance of the Loan for any Interest payments due thereafter. Borrowers may also prepay all of the principal of the Loan at any time provided such prepayment shall include interest calculated to the date of prepayment plus fifty (50%) percent of the interest that would have been earned had the Loan not been prepaid from the date of such prepayment to the Due Date (the "Yield Maintenance Payment"). It is acknowledged that the Yield Maintenance Payment is intended to compensate Lender for utilizing its credit in order to make the Loan to Borrowers and is not to be deemed additional interest for any purpose. The Yield Maintenance Payment shall also be due in the event of a prepayment as a result of acceleration of the Loan as a result of an Event of Default (See Section 1.6). 2 1.6. Acceleration. Notwithstanding the other provisions of this Agreement, immediately upon the occurrence of any Event of Default (as defined in Section 5.1) and during any continuance thereof, the Lender may declare the Loan, all interest thereon and all other amounts and obligations payable to be forthwith due and payable to the Lender or may take any other action as provided in Section 5.2 and 5.3 of this Agreement. 1.7. Payment Procedures. All payments made by Borrowers under this Agreement shall be made to the Lender at its office at the address indicated in Section 7.3 and shall be made in U.S. dollars. All payments received by the Lender shall be applied first to fees and expenses (if any), then to accrued interest, then to the Yield Maintenance Payment and lastly, to unpaid principal in accordance with the terms of this Agreement. To the extent not previously repaid, all principal and interest outstanding with respect to the Loan, plus any accrued but unpaid expenses and fees or other obligations arising under this Agreement, shall be due and payable in full on the "Due Date." ARTICLE II COLLATERAL 2.1. Collateral. Borrowers hereby pledge, assign and grant to Lender, as security for the performance of this Agreement, the Note and any other documents executed in connection herewith (the "Loan Documents"), and the repayment of the Loan and for all other indebtedness, liabilities and obligations of Borrowers (primary, secondary, direct, contingent, related, unrelated, sole, joint or several) due or to become due to Lender or which may be contracted for or acquired hereafter (collectively, the "Obligations"), a security interest under the Uniform Commercial Code in effect in the States of New Jersey and New York in all Accounts, Inventory, General Intangibles, (including but not limited to trade names, brand names (such as Brooklyn Cheesecake), recipes and customer lists), Chattel Paper, Instruments, Documents and Equipment (whether or not constituting fixtures) and any other asset now owned or hereafter acquired by Borrowers, together with all cash and non-cash proceeds, products, distributions, additions, accessions, substitutions, exchanges and replacements thereof, (collectively, the "Collateral"). 2.2. Further Assurances. Borrowers shall from time to time promptly take all actions (and execute, deliver and record all instruments and documents) necessary or reasonably appropriate or requested by Lender, to perfect and protect any security interest granted or purported to be granted hereby or to enable Lender to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral. 2.3. Attorney-In-Fact. Borrowers hereby irrevocably appoint Lender as its attorney-in-fact, in the name of Borrowers or otherwise, from time to time in Lender's discretion and at Borrowers' expense, to take any action and to execute, deliver and record any instruments or documents which Lender may deem necessary or advisable in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Lender to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral including, without limitation, financing or continuation statements under the Uniform Commercial Code, and amendments thereto. Lender shall not, in its capacity as such attorney-in-fact, be liable for any acts or omissions, nor for any error of judgment or mistake of fact or law, but only for gross negligence or willful misconduct. All authorizations and agencies herein contained with respect to the collateral are irrevocable powers coupled with an interest. 3 ARTICLE III REPRESENTATIONS AND WARRANTIES Borrowers hereby make the following representations and warranties, which shall be continuing in nature and remain in full force and effect until the Obligations are satisfied in full: 3.1. Existence and Power. Brooklyn Cheesecake and JMS are corporations duly organized, validly existing and in good standing in all material respects under the laws of the jurisdiction of their respective incorporation or organization and have all requisite power and authority to own and operate their assets and to conduct their business as now or proposed to be carried on, and are duly qualified, licensed and in good standing to do business in all jurisdictions where their ownership of property or the nature of their business requires such qualification or licensing. Borrowers have the full power and authority to execute, deliver and perform this Agreement, the Note, financing statements, and all other agreements, instruments, and documents evidencing or securing the Loan (collectively as "Loan Documents"). 3.2. Authorization and Enforceability. Borrowers have been duly authorized to execute, deliver and perform the Loan Documents by all appropriate action of their respective Boards of Directors or otherwise as may be required by law, charter or other organizational documents or agreements. Each of the Loan Documents, when executed and delivered by Borrowers, will constitute the legal, valid and binding obligation of Borrowers, enforceable in accordance with their respective terms. 3.3. No Defaults or Violations. There does not exist any Event of Default (as that term is defined in Section 5.1) under this Agreement or any material default or violation by Borrowers of or under any of the terms, conditions or obligations of: (a) Brooklyn Cheesecake and JMS articles or certificate of incorporation, regulations or bylaws or other organizational documents as applicable; (b) any indenture, mortgage, deed of trust, franchise, permit, contract, agreement, or other instrument to which Brooklyn Cheesecake and JMS are a party or by which they or any of their properties may be bound; or (c) any law, regulation, ruling, order, injunction, decree, condition or other requirement applicable to or imposed upon Borrowers by any law, or by the action of any court or other governmental authority or agency; and the execution, delivery and performance of the Loan Documents will not result in any such default or violation, nor are any approvals, authorizations, licenses, waivers or consents, governmental (foreign, federal, state or local) or non-governmental, under the terms of contracts or otherwise, required to be obtained by Borrowers by reason of or in connection with their execution, delivery and performance of any of the Loan Documents. Notwithstanding anything else to the contrary contained in this Agreement or any Loan Document, Lender acknowledges that Borrowers have informed Lender that Borrowers may pay their creditors on a 90-day or more basis, and that such event shall not constitute a breach or an Event of Default with respect to this Agreement or any of the Loan Documents. 3.4. Financial Statements. Borrowers have delivered or caused to be delivered to Lender their most recent balance sheet, income statement and statement of cash flows as of December 31, 2004 (the "Financial Statements"). The Financial Statements are true, accurate and complete in all material respects and fairly present the financial condition, cash flow and the results of Borrowers' operations as of the respective dates thereof and for the periods therein referred to, all in accordance with generally accepted accounting principles in effect from time to time ("GAAP"), consistently applied from period to period subject in the case of interim statements to normal year-end adjustments and excluding disclosures normally required by GAPP. Borrowers do not have any liabilities or obligations of any nature (whether or not of the nature required to be reflected in a balance sheet prepared in accordance with GAAP) that are not reflected on the Financial Statements (including, without limitation, any liabilities relating to environmental, occupational and health matters or ERISA) except for current liabilities (within the meaning of GAAP) which have been incurred since the date thereof in the ordinary course of business and consistent in nature and amount with Borrowers' operating history. Notwithstanding anything else to the contrary contained in this Agreement or any Loan Document, Lender acknowledges that Borrower has informed Lender that Borrower has incurred liabilities as set forth on Schedule 4.2.1, and the existence of such debt shall not constitute a breach or an Event of Default of this Agreement or any of the Loan Documents. 4 3.5. No Material Adverse Change. Since the date of their most recent Financial Statements, Borrowers have not suffered any damage, destruction or loss, and no event or condition has occurred or exists, which has resulted or could result in a material adverse change in its business, assets, operations, financial condition or results of operation. 3.6. Title to Assets; Existing Liens. Borrowers have good and marketable title to their assets, free and clear of all liens and encumbrances, except for (a) current taxes and assessments not yet due and payable, (b) liens and encumbrances, if any, reflected or noted in their most recent Financial Statements, (c) assets disposed of by Borrowers since the date of their most recent Financial Statements in the ordinary course of business, consistent with past practice, and (d) the liens and encumbrances described on Schedule 3.6. 3.7. Litigation. Except as set forth in Schedule 3.7, there are no actions, suits, proceedings or governmental investigations pending or, to the knowledge of Borrowers, threatened, against Borrowers or any of their properties which could result in a material adverse change in Borrowers' business, assets, operations, financial condition or results of operations and there is no basis known to Borrowers for any action, suit, proceeding or investigation which could result in such a material adverse change. 3.8. Tax Returns. Borrowers have filed all returns and reports that are required to be filed by them in connection with any federal, state or local tax, duty or charge levied, assessed or imposed upon them or any of their properties or that they are required to withhold and pay over including, without limitation, unemployment, social security and similar taxes, and all of such taxes have been paid or adequate reserves therefor have been set aside or other provisions therefor have been made. 3.9. Intellectual Property. Borrowers own or are licensed to use all patents, patent rights, trademarks, trade names, service marks, copyrights, intellectual property, technology, know-how and processes necessary for the conduct of their business as currently conducted that are material to Borrowers' condition (financial or otherwise), business or operations. Lender acknowledges that the names "Brooklyn Cheesecake Company, Inc." and "Brooklyn Cheesecake and Desserts Company" are not registered or protected under state or federal laws, but Borrowers represent that they have instituted the process of registering and trade marking said names, and Borrowers covenant that they will pursue said process with diligence. 3.10. Intentionally left blank. 3.11. Disclosure. None of the Loan Documents contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements contained in the Loan Documents not misleading. There is no fact known to Borrowers which materially and adversely affects or, so far as Borrowers can now foresee, might materially and adversely affect Borrowers' business, assets, operations, financial condition or results of operation and which have not otherwise been fully set forth in this Agreement or otherwise disclosed in writing to Lender. 5 3.12. Places of Business. The locations of Borrowers' chief executive office and other places of business are shown on Schedule 3.12. Borrowers covenant not to establish any new, or discontinue any existing, place of business without giving Lender at least 30 days' prior notice. 3.13. Intentionally left blank. 3.14. Subsidiaries, Affiliates, and Other Investments. Except as shown on Schedule 3.14, Borrowers have no subsidiaries or affiliates (other than its own shareholders); nor do Borrowers have any investment in any other person or entity. ARTICLE IV COVENANTS 4.1. Affirmative Covenants. Borrowers agree that from the date of execution of this Agreement until the Obligations are satisfied in full, Borrowers shall (and shall cause each of its majority-owned subsidiaries, if any, to): 4.1.1. Payments of Taxes and Other Charges. Pay and discharge when due all taxes, assessments, charges, levies and other liabilities imposed upon Borrowers, their income, profits, properties or business, except those which currently are being contested in good faith by appropriate proceedings and for which Borrowers shall have set aside adequate reserves or made other adequate provisions acceptable to Lender in its sole discretion. 4.1.2. Maintenance of Existence, Operation and Assets; Inspection. Do all things necessary to maintain, renew and keep in full force and effect their respective organizational existence and all rights, permits and franchises necessary to enable them to continue their business; continue in operation in substantially the same manner as at present; conduct business and enter into transactions only in the ordinary course, consistent with past practice; keep their properties in good operating condition and repair; make all necessary and proper repairs, renewals, replacements, additions and improvements thereto; and permit representatives of Lender to inspect Borrowers' properties and its books and records and to make extracts therefrom at all reasonable times during normal business hours. 4.1.3. Insurance. Keep their assets insured with responsible insurance companies against those risks and in such amounts as are commonly insured against by companies in similar businesses and owning similar assets. At Lender's request, Borrowers shall have Lender named as loss payee on all hazard insurance policies covering the Collateral and shall have Lender named as an additional insured on liability policies. Borrowers shall deliver to Lender such certificates, endorsements, and other evidence of such insurance as Lender may reasonably request. 4.1.4. Compliance with Laws. Comply materially with all laws applicable to Borrowers and to the operation of their respective business (including, without limitation, any statute, rule or regulation relating to employment practices and employee benefits and to environmental, occupational and health standards and controls). 4.1.5. Financial Reports. Deliver promptly such financial statements and reports as Lender may reasonably request including, without limitation, annual financial statements audited or reviewed by independent certified public accountants, quarterly interim financial statements prepared by Borrowers' management and within ten (10) days after the end of each calendar month, a monthly statement of cash flow and accounts receivable certified as accurate by the CEO of Borrowers. All such financial data shall be true, accurate and complete in all material respects and shall be prepared in accordance with GAAP consistently applied, subject, in the case of interim statements, to normal year-end adjustments and excluding disclosures normally required by GAAP. 6 4.1.6. Additional Reports. Provide prompt notice to Lender of the occurrence of any of the following (together with a description of the action which Borrowers propose to take with respect thereto): (a) any Event of Default or potential Event of Default hereunder or under any of the Loan Documents, (b) any litigation filed by or against Borrowers, (c) any event which might result in a material adverse change in Borrowers' business, assets, operations, financial condition or results of operation; and provide to Lender any other reports reasonably requested thereby. 4.1.7. Use of Proceeds. Use of the proceeds of the Loan only for the purposes specified in Section 1.1 above. 4.1.8. Indemnification. Borrowers agree to pay, and to hold Lender harmless from, any and all liabilities, costs and expenses (including, without limitation, reasonable legal fees and expenses) (i) with respect to, or resulting from, any delay in paying any and all excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral, (ii) with respect to, or resulting from, any delay in complying with any requirement of law applicable to any of the Collateral or (iii) in connection with any of the transactions contemplated by this Agreement or the Loan Documents. In any suit, proceeding or action brought by Lender to enforce the provisions of this Agreement, Borrowers will save, indemnify and keep Lender harmless from and against all expense, loss or damage suffered by reason of any defense, set off, counterclaim, recoupment or reduction or liability whatsoever of the account of Borrowers or obligor thereunder, arising out of a breach by Borrowers of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account of Borrowers or obligor or its successors. 4.1.9. Further Identification of Collateral. Borrowers will furnish to Lender from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Lender may reasonably request, all in reasonable detail. 4.1.10 Notices. Borrowers will advise Lender, in reasonable detail, at its address set forth below, (i) of any encumbrance on, or claim asserted against, any of the Collateral and (ii) of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the encumbrances created hereunder. 4.2. Negative Covenants. Borrowers covenant and agree that from the date of execution of this Agreement until the Obligations are satisfied in full, Borrowers shall not (and shall cause each of its majority-owned subsidiaries, if any, not to), without Lender's prior written consent: 4.2.1. Indebtedness. Except as provided in Schedule 4.2.1 of this Agreement, maintain, create or incur any indebtedness for borrowed money other than the Loan and any subsequent indebtedness to Lender, 4.2.2. Liens and Encumbrances. Except for liens in favor of Lender create, assume or permit to exist any mortgage, pledge, encumbrance or other security interest or lien upon any assets now owned or hereafter acquired by Borrower. Notwithstanding anything else to the contrary contained in this Agreement or any of the Loan Documents, (i) Borrowers may lease equipment under which the lessor of such equipment may maintain a security interest in the equipment leased, and (ii) Borrowers may purchase equipment under which the seller of such equipment may maintain a security interest in the equipment purchased by the Borrowers. 7 4.2.3. Guarantees. Guarantee, endorse or become contingently liable for the obligations of any person or entity, except in connection with the endorsement and deposit of checks in the ordinary course of business for collection. 4.2.4. Merger; Disposition of Assets. Merge or consolidate with or into any person or entity or lease, sell, transfer or otherwise dispose of any material assets, whether now owned or hereafter acquired, other than in the normal course of business and consistent with past practices. 4.2.5. Change in Business, Management or Ownership. Make or permit any material change in the nature of Borrower's business as carried on as of the date hereof or make any other major decisions which effect the business of Borrower other than day to day operation decisions. 4.2.6. Intentionally left blank. 4.2.7. Investments. Purchase or hold beneficially any stock, other securities or evidence of indebtedness or make any loans or advances to, or make any investment or acquire any interests in, any other person or entity 4.2.8. Related Party Loans. Repay any loans payable to officers, shareholders or directors of Borrowers. For so long as no Event of Default has occurred, notwithstanding anything else to the contrary contained in this Agreement or any of the Loan Documents, the Borrower may pay to (i) Ronald L. Schutte the "Minimum Amount Due," or past due amounts thereof, as required under the American Express Business Capital Line and in connection with the Revolving Credit Note to Ronald L. Schutte listed in Schedule 4.2.1 and (ii) Anthony Merante the "Minimum Payment Due," or past due amounts thereof, as required under the Fleet Business Credit Express and in connection with the Revolving Credit Note to Anthony Merante listed in Schedule 4.2.1. ARTICLE V DEFAULT 5.1. Events of Default. Events of default (an "Event of Default") are as follows: 5.1.1. Any material default in the Note or any of the other Loan Documents. 5.1.2 (a) Borrowers fail to make any payment of principal or interest payable under this Agreement or Loan Documents when due; or (b) Borrowers fail to fully perform any material term, condition or obligation as provided in this Agreement or Loan Documents that remains uncured for five (5) business days after notice from Lender of such default; or (c) Brooklyn Cheesecake or JMS file for bankruptcy or reorganization, are generally not paying their debts in accordance with past business practice, make an assignment for the benefit of creditors, a trustee or receiver is appointed over Brooklyn Cheesecake or JMS or any of their property, bankruptcy, liquidation or other similar proceedings is commenced against Brooklyn Cheesecake or JMS, or a writ or warrant or similar process is issued against Brooklyn Cheesecake or JMS or their property; or (d) Brooklyn Cheesecake or JMS no longer remain a corporation in good standing in the State of its organization, or (e) The death, disability, resignation or removal of Ronald L. Schutte ("Schutte"), as CEO of Borrowers, unless in the case of death or disability there exists "Key Man" or disability insurance policies with proceeds utilized to pay all amounts due the Lender within a reasonable period of time. In addition, the Lender must be named as an additional insured and/or beneficiary on such policies, or (f) The inability of Borrowers to pay any of their debts (in accordance with past business practice) or taxes as they become due, or (g) The filing of a summary proceeding by Borrowers' landlord or of any lawsuit in excess of $20,000 against Brooklyn Cheesecake and/or JMS that is not removed or bonded within 15 days of institution of such lawsuit. 5.2. Remedies on Default: . 5.2.1. Proceeds. If an Event of Default under this Agreement shall occur and be continuing or if any portion of the Obligations has become due and remain unpaid and if so requested by Lender (a) all proceeds received by Borrowers consisting of cash, checks and other near-cash items shall be held by Borrowers in trust for Lender, and shall, forthwith upon receipt by Borrowers, be turned over to Lender in the exact form received by Borrowers (duly endorsed by Borrowers to Lender, if required), and (b) any and all such proceeds received by Lender (whether from Borrowers or otherwise) may, in the sole discretion of Lender, be held by Lender for its own benefit as collateral security for, and/or then or at any time thereafter may be applied by Lender against the Obligations (whether matured or unmatured), such application to be in such manner as set forth in the Note and Borrowers waive any right of offset they may otherwise have. Any balance of such proceeds remaining after the Obligations shall have been paid in full and Lender shall have no further obligations or commitments under the Note shall be paid over to Borrowers or to whomsoever may be lawfully entitled to receive the same. 5.2.2. Remedies. If any Event of Default under this Agreement shall have occurred and be continuing or from and after the date that any portion of the Obligations has become due and remains unpaid, Lender may exercise in addition to all other rights and remedies granted to them in this Agreement and in any Loan Documents, evidencing or relating to the Obligations, all rights and remedies of a secured party under the UCC. Without limiting the generality of the foregoing, in the event of such an Event of Default as described in the preceding sentence, Lender, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon Borrowers or any other person (all and each of which demands, defenses, advertisements and notices are hereby waived) may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing) in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Lender shall have the right upon any such public sale 9 or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption which right or equity is hereby waived or released. Borrowers further agree, at Lender's request, and to the extent that Borrowers are able to do so, to assemble the Collateral and make it available to Lender at places, which Lender shall reasonably select, whether at Borrowers' premises or elsewhere. Lender shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of Lender hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the obligations, in such manner as is set forth in the Note and only after such application and after the payment by Lender of any other amount required by any provision of law, including, without limitation, Section 9-504(1)(c) of the UCC, need Lender account for surplus, if any, to Borrowers. To the extent permitted by applicable law, Borrowers waive all claims, damages and demands it may acquire against Lender arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least ten (10) days before such sale or other disposition. Borrowers shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the obligations and the fees and disbursements of any attorneys employed by Lender to collect such deficiency. 5.2.3. No Subrogation. Notwithstanding any payment or payments made by Borrowers hereunder, or any set off or application of funds of Borrowers by Lender, or the receipt of any amounts by Lender with respect to any of the Collateral, Borrowers shall not be entitled to be subrogated to any of the rights of Lender against any other collateral security held by Lender for the payment of the Obligations until all amounts owing to Lender on account of the Obligations or commitments under the Note have been paid in full. If any amount shall be paid to Lender on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by Borrowers in trust for Lender, and shall, forthwith upon receipt by Borrowers, be turned over to Lender in the exact form received by Borrowers (duly endorsed by Borrowers to Lender, if required) to be applied against the Obligations, whether matured or unmatured, in such manner as set forth in the Note, this Agreement and the Loan Documents. 5.2.4. Appointment to Borrowers Board of Directors. Within 10 days after a default under the Loan Documents, Brooklyn Cheesecake and JMS shall take actions to cause the removal and/or resignation of a sufficient number of directors and to replace such directors with directors nominated by the Lender in order that there shall be a majority of directors on their respective Boards of Directors that are nominated by the Lender, provided that nominees of the Lender are qualified to serve as directors and there remains on the Boards of Directors a sufficient number of independent directors in order to be in compliance with law. It is acknowledged that this provision is intended to facilitate Lender's execution on the Collateral if an Event of Default occurs. ARTICLE VI DISPUTE RESOLUTION 6.1. Resolution of Disputes. 10 6.1.1. Jurisdiction; Process. The parties hereto irrevocably submit to the non-exclusive jurisdiction of any New York state or United States Federal Court sitting in New York, New York over any suit, action or proceeding arising out of or relating to this Agreement. The parties hereto further consent to process being served in any such suit, action or proceeding by mailing a certified copy thereof, return receipt requested, to said party at its respective address referred to in Section 7.3. Each party agrees that such service shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and shall, to the full extent permitted by law, be taken and held to be valid personal service upon and personal delivery to it. Nothing in this paragraph shall affect or limit any right to serve process in any manner permitted by law, to bring proceedings in the courts of any jurisdiction or to enforce in any lawful manner a judgment obtained in any other jurisdiction. Borrowers irrevocably waive, to the full extent permitted by law, any objection which it may have to the laying of venue of any such suit, action or proceeding brought in any such court any claim that any such suit, action or proceeding has been brought in an inconvenient forum. So long as this Agreement remains in effect, Borrowers will at all times have an authorized agent in New Jersey upon whom process may be served in any action or proceeding arising out of or relating to this Agreement. 6.1.2. Performance Pending Resolution. Each party shall be required to continue to perform its respective obligations under the Loan Documents pending final resolution of any Dispute, unless to do so would be impossible or impracticable under the circumstances. ARTICLE VII MISCELLANEOUS 7.1. Expenses. Borrowers shall pay to Lender or at Lender's direction, upon execution of this Agreement, and otherwise on demand, all costs and expenses incurred by Lender in connection with (a) the preparation, negotiation and closing of this Agreement, Loan Documents and any related documents, and any modifications hereto or thereto, it being agreed that reimbursement for said legal fees incurred by Lender exclusive of disbursements shall not exceed $5,000, and (b) instituting, maintaining, preserving, enforcing and foreclosing the security interest in any of the Collateral, whether through judicial proceedings, arbitration or otherwise, or in defending or prosecuting any actions, arbitrations or proceedings arising out of or relating to this Agreement or the Loan Documents including, without limitation, reasonable fees and expenses of counsel, expenses for auditors, appraisers and environmental consultants, lien searches, recording and filing fees and taxes. 7.2. Amendments, Indulgences, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by Borrower herefrom shall in any event be effective unless the same shall be in writing and signed by Lender, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure or delay on the part of Lender in the exercise of any right, power, or remedy under this Agreement or any of the other Loan Documents shall under any circumstances constitute or be deemed to be a waiver thereof, or prevent the exercise thereof in that or any other instance. 7.3. Notices. All notices given hereunder shall be in writing and deemed validly given (a) three (3) business days after sent, postage prepaid, by certified mail, return receipt requested, (b) one (1) business day after sent, charges paid by the sender, by Federal Express Next Day Delivery or other guaranteed delivery service, (c) when confirmation of transmission by facsimile during normal business hours is received, or (d) when delivered by hand, upon delivery, in each case to the intended recipient at its address shown below or to such other address, or in care of such other person, as either party shall hereafter specify to the other from time to time by due notice: 11 If to Borrowers: Brooklyn Cheesecake & Desserts Company, Inc. 20 Passaic Avenue Fairfield, New Jersey 07004 Attention: Ron Schutte Fax No.: (973) 808-0203 J.M. Specialties, Inc. Creative Bakeries, Inc. 20 Passaic Avenue Fairfield, New Jersey 07004 Attention: Ronald L. Schutte Fax No.: (973) 808-0203 If to Lender: Ronald L. Schutte 360 Hollywood Avenue Yonkers, New York 10707 Fax No.: (914) 961-3896 7.4. Interpretation. Except as otherwise indicated, all agreements defined herein refer to the same as from time to time amended or supplemented or the terms thereof waived or modified in accordance herewith and therewith. Any provision hereof found to be illegal, invalid or unenforceable for any reason whatsoever shall not affect the legality, validity or enforceability of the remainder hereof. Except as otherwise provided for in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 7.5. Entire Agreement. This Agreement, and all agreements and instruments to be delivered by the parties pursuant hereto or in connection herewith, represent the entire understanding of the parties with respect to the subject matter hereof, and supersede all other prior and contemporaneous agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. 7.6. Governing Law. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns, and construed and interpreted according to the laws of the State of New York. 7.7. Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument. 12 7.8. Continuing Security Interest. This Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until the payment in full of the obligations and all other amounts payable under this Agreement and the Loan Documents. Upon any assignment or transfer by Lender, the transferee shall thereupon become vested with all the benefits in respect thereof granted to Lender herein or otherwise. Upon the payment in full of the Obligations and all other amounts payable under this Agreement, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to Borrowers. Upon any such termination, Lender will, at Borrowers' expense, execute and delivery to Borrowers such documents as Borrowers shall reasonably request to evidence such termination. 7.9 Limitation on Duties Regarding Preservation of Collateral. Lender's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the UCC or otherwise, shall be to deal with it in the same manner as Lender deals with similar property for its own account. Neither Lender, nor any of their respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of Borrowers or otherwise. 7.10. Paragraph Headings. The paragraph headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. NO FURTHER TEXT ON THIS PAGE SIGNATURE PAGE FOLLOWS 13 IN WITNESS WHEREOF, the parties have executed or caused to be executed this Agreement as of the day and year first above written. Borrowers: Brooklyn Cheesecake & Desserts Company, Inc., formerly known as Creative Bakeries, Inc. By: ------------------------------ Ronald L. Schutte Title: Chief Executive Officer J.M. Specialties, Inc., A New Jersey Corporation By: ------------------------------ Ronald L. Schutte Title: Chief Executive Officer & President Lender: ------------------------------ Ronald L. Schutte CONFIRMATION IN WITNESS WHEREOF, on behalf of and upon due authorization from the Board of Directors of Brooklyn Cheesecake & Desserts Company, Inc., formerly known as Creative Bakeries, Inc. ("Corporation"), the director below has read and understands, and hereby approves, confirms, and ratifies this Agreement on behalf of the Board of Directors as of the date first written above; and the director below further approves, confirms, and ratifies on behalf of the Board of Directors the execution and delivery of this Agreement and all the acts by Schutte performed on behalf of the Corporation in connection with this Agreement. By: - ------------------------------- Name: Carmelo L. Foti Title: Director State of New Jersey, County of s s : On the day of in the year before me, the undersigned, personally appeared Ronald L. Schutte personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument. - ---------------------------------------------------------- (signature and office of individual taking acknowledgment) 14 SCHEDULES AND EXHIBITS ----------------------------------------- Exhibit 1.2 Note Schedule 3.6 Liens and Encumbrances Schedule 3.7 Litigation Schedule 3.12 Places of Business Schedule 3.14 Subsidiaries and Affiliates; Other Investments Schedule 4.2.1 Indebtedness for Borrowed Money 15 Exhibit 1.2 Secured Promissory Note 16 Schedule 3.6 Liens and Encumbrances Voicemail System 17 Schedule 3.7 Litigation None 18 Schedule 3.12 Places of Business 20 Passaic Avenue Fairfield, New Jersey 07004 19 Schedule 3.14 Subsidiaries and Affiliates; Other Investments J.M. Specialties, Inc. A New Jersey Corporation is a wholly owned subsidiary of Brooklyn Cheesecake & Desserts Company, Inc., formerly known as Creative Bakeries, Inc. 20 Schedule 4.2.1 Indebtedness for Borrowed Money 1. Promissory Note payable to Ronald L. Schutte in the amount of $88,000.00. 2. Promissory Note payable to Ronald L. Schutte in the amount of $54,000.00. 3. Promissory Note payable to Anthony J. Merante in the amount of $28,000.00. 4. Revolving Credit Note payable to Ronald L. Schutte in the amount of $50,000.00, representing funds loaned to Borrower from Ronald L. Schutte's and Creative Bakers's Inc.'s American Express Business Capital Line. 5. Revolving Credit Note payable to Anthony Merante and Anthony J. Merante CPA in the amount of $50,000.00 loaned to Borrower from Anthony Merante's and Anthony J. Merante CPA's Fleet Business Capital Express line of credit. 6. Promissory Note payable to Anthony J. Merante in the amount of $8,910.74. 21 EX-10.33 6 v016391_ex10-33.txt Exhibit 10.33 SECURED PROMISSORY NOTE (the "Note") Dated to be Effective as of December 1, 2004 Principal Amount: $317,000 A. TERMS OF LOAN FOR VALUE RECEIVED, BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC. formerly know as CREATIVE BAKERIES, INC., a New York corporation ("BROOKLYN CHEESECAKE & DESSERTS"), and J.M. SPECIALTIES, INC., A NEW JERSEY CORPORATION ("JMS") (BROOKLYN CHEESECAKE & DESSERTS and JMS are collectively referred to as the "BORROWERS"), with offices at 20 Passaic Avenue, Fairfield, New Jersey 07004, jointly and severally promise to pay to the order of RONALD L. SCHUTTE (the "LENDER"), residing at 360 Hollywood Avenue, Yonkers, New York 10707, or at such other place as the Lender may designate in writing, the principal sum of THREE HUNDRED SEVENTEEN THOUSAND DOLLARS ($317,000), (the "Loan" or "Principal"). 1. INTEREST; PREPAYMENT. (a) Borrower will pay Interest on the unpaid Principal amount hereof, computed on the basis of the actual number of days elapsed in a 360-day year, at a rate which shall be equal to thirteen percent (13.00%) per annum (the "Interest Rate"). (b) The "Interest Rate Factor" shall be calculated by dividing the annual Interest Rate of 13% by 360 days and then multiplying the resulting quotient by the Number of Elapsed Days. The "Number of Elapsed Days" shall be determined by the number of days from the last day of the previous month (excluding such last day of the previous month) up until and including the date upon which the Interest will be due. The "Interest" shall be calculated by multiplying the applicable Interest Rate Factor by the outstanding Principal balance of the Loan as of the date each Interest payment is due unless there has been a modification of the Principal balance during such period (such as by a payment) in which event Interest will be calculated based on the outstanding Principal balances from time to time. Interest on the Loan shall be due and payable on the last day of each month up to and including the Due Date of the Loan provided such day is a Business Day ("Business Day"). Business Day shall mean any day other than Saturday, Sunday, or any other day on which commercial banks located in the State of New York are required or authorized by law to be closed for business. Borrower will pay Interest on any overdue installment of Principal or Interest for the period for which overdue, on demand, at a rate equal to eighteen percent (18.00%) per annum. In no event shall Interest exceed the maximum legal rate permitted by law, and any Interest that exceeds the maximum legal rate shall be reduced to the maximum legal rate permitted by law. All payments, including insufficient payments, shall be credited, regardless of their designation by Borrowers, first to collection expenses due hereunder, then to outstanding late charges, then to Interest due and payable but not yet paid, then to the Yield Maintenance Payment (if any) and the remainder, if any, to Principal. All payments by Borrowers or any endorser of this Note on account of Principal, Interest or fees hereunder shall be made in lawful money of the United States of America. Page 1 of 5 (c) Prepayment. The Borrowers may prepay up to (Sixty Two Thousand Five Hundred ($62,500) Dollars in Principal on each date that Interest is due pursuant to this Agreement, without penalty or premium. Borrowers may also prepay all of the Principal of the Loan at any time provided such prepayment shall include Interest calculated to the date of prepayment plus fifty (50%) percent of the Interest that would have been earned had the Loan not been prepaid from the date of such prepayment to the Due Date of the Loan (the "Yield Maintenance Payment"). It is acknowledged that the Yield Maintenance Payment is intended to compensate Lender for utilizing its credit in order to make the Loan to Borrowers and is not to be deemed additional Interest for any purpose. The Yield Maintenance Payment shall also be due in the event of a prepayment as a result of acceleration of the Loan as a result of an Event of Default. 2. DUE DATE. The Loan together with Interest as provided herein shall be due on April 1, 2005 (the "Due Date"). B. REPRESENTATIONS AND WARRANTIES 3. Borrowers represents and warrant to the Lender that: (a) The Note is legal, valid, and contains binding obligations of Borrowers enforceable against Borrowers in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights generally and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding therefor may be brought. (b) Borrowers are not in default in the performance, observance or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument to which it is a party, except where such default would not have a material adverse effect on the assets, liabilities or financial condition of Borrowers (a "Material Adverse Effect"). (c) There is no pending or threatened action or proceeding against or affecting Borrowers before any court, governmental agency, or arbitrator which is reasonably likely to, in any one case or in the aggregate, have a Material Adverse Effect or materially and adversely affect the ability of Borrowers to perform their obligations under this Note. C. EVENTS OF DEFAULT 4. If any of the following events shall occur and be continuing: (a) Borrowers shall fail to make any payment of Principal or Interest on this Note when due, except that Lender may either prospectively or retroactively waive the date upon which Interest is due in which case unpaid Interest on Principal, including amounts on overdue installments of Principal and Interest, shall be added to Principal and provided that such waiver is given, such non payment of Principal shall not be considered an event of default; (b) Borrowers shall be in material default in the performance or observance of any covenant or agreement contained herein or in the Loan and Security Agreement securing this Loan following five (5) business days' written notice thereof; Page 2 of 5 (c) Any representation or warranty made by or on behalf of Borrowers in this Note, or in the Loan and Security Agreement or in any other agreement, instrument, or statement delivered to the Lender by or on behalf of Borrowers shall at any time prove to have been incorrect when made in any material respect; (d) Brooklyn Cheesecake & Desserts or JMS no longer remain corporations in good standing in the states of their respective organizations; (e) The death, disability, resignation or removal of Ronald L. Schutte ("Schutte"), as CEO and/or President of Borrowers, unless in the case of death or disability there exists "Key Man" or disability insurance policies with proceeds utilized to pay all amounts due the Lender within a reasonable period of time. In addition, the Lender must be named as an additional insured and/or beneficiary on such policies; (f) The inability of Borrowers to pay any of their debts in accordance with past business practice or taxes as they become due; (g) The filing of any lawsuit in excess of $20,000 against Brooklyn Cheesecake & Desserts and/or JMS that is not removed or bonded within 15 days of institution of such lawsuit; (h) Sales fall below $600,000 in any calendar quarter; (i) Cash and accounts receivable are below $125,000; (j) Any judgment against Brooklyn Cheesecake & Desserts or JMS or any attachment, levy or execution against any of their properties for any material amount shall remain unpaid, or shall not be released, discharged, dismissed, stayed or fully bonded for a period of fifteen (15) days or more after its entry, issue or levy, as the case may be; (k) Brooklyn Cheesecake & Desserts or JMS shall make an assignment for the benefit of creditors, or a trustee, receiver or liquidator shall be appointed for either of them or for any of their property; or (l) The commencement of any proceedings by Brooklyn Cheesecake & Desserts or JMS under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt, receivership, liquidation or dissolution law or statute or the commencement of any such proceedings without the consent of Borrower and such involuntary proceedings shall continue undischarged for a period of sixty (60) days; then, and in any such event, (with each of the foregoing events to constitute an "EVENT OF DEFAULT"), the Lender may declare the entire unpaid Principal amount of this Note and all Interest and fees accrued and unpaid hereon to be immediately due and payable, whereupon the same shall become and be forthwith due and payable, without presentment, demand, offset, protest or notice of any kind, all of which are hereby expressly waived by Borrowers. D. MISCELLANEOUS 5. GOVERNING LAW. This Note shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its rules on conflicts of laws. Page 3 of 5 6. NOTICES, ETC. All notices and other communications provided for under this Note shall be in writing (including telegraphic, telex, and facsimile transmissions) and mailed or transmitted or delivered, if to Borrowers, at Borrower's address indicated above or by facsimile transmission to (973) 808-0203, and if to the Lender, at its address indicated above or by facsimile transmission to (914) 961-3896, or, as to each party, at such other address or facsimile transmission number as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this paragraph. Except as otherwise provided in this Note, all such notices and communications shall be effective either on receipt if delivered by hand, telegraphic, telex and facsimile transmissions, or three (3) Business Days following deposit, postage fully paid, in the mails by certified mail. 7. NO WAIVER. No failure or delay on the part of the Lender in exercising any right, power, or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power, or remedy preclude any other or further exercise thereof or the exercise of any other right, power, or remedy hereunder. The rights and remedies provided herein are cumulative, and are not exclusive of any other rights, powers, privileges, or remedies, now or hereafter existing, at law or in equity or otherwise. 8. COSTS AND EXPENSES. Borrowers shall reimburse the Lender for all costs and expenses incurred by the Lender and shall pay the reasonable fees and disbursements of counsel to the Lender in connection with the preparation of this Secured Promissory Note and any documents related thereto with a maximum amount of $5,000 plus disbursements, and shall also pay all costs including reasonable fees incurred by Lender in enforcement of the Lender's rights hereunder. Borrowers shall also pay any and all taxes (other than taxes on or measured by net income of the holder of this Note) incurred or payable in connection with the execution and delivery of this Note. 9. AMENDMENTS. No amendment, modification, or waiver of any provision of this Note nor consent to any departure by Borrowers therefrom shall be effective unless the same shall be in writing and signed by the Lender and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given. Borrowers hereby waive demand, presentment, notice of dishonor, and protest of nonpayment and agree that any time and from time to time and with or without consideration, Lender may, without notice to or further consent of Borrowers, and without in any manner releasing, or affecting the obligations of Borrowers: (a) release, surrender, waive, add, substitute, settle, exchange, compromise, modify, extend, or grant indulgences with respect to (i) this Note, and (ii) all or any part of any collateral or security for this Note; and (b) grant any extension or other postponements of the time of payment hereof. 10. SUCCESSORS AND ASSIGNS. This Note shall be binding upon Borrowers and its heirs, legal representatives, successors and permitted assigns and the terms hereof shall inure to the benefit of the Lender and its successors and permitted assigns, including subsequent holders hereof. This Note is freely transferable and assignable by the Lender and each subsequent holder hereof and any reference to Lender herein shall be deemed to refer to any subsequent transferee or assignee of this Note. Notwithstanding the foregoing, Borrowers may not assign their rights or obligations under this Note whether by voluntary assignment or transfer, operation of law, or otherwise without the consent of Lender. 11. SEVERABILITY. The provisions of this Note are severable, and if any provision shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall not in any manner affect such provision in any other jurisdiction or any other provision of this Note in any jurisdiction. Page 4 of 5 12. ENTIRE AGREEMENT. This Note sets forth the entire agreement of Borrowers and the Lender with respect to this Note and may be modified only by a written instrument executed by Borrower and the Lender. 13. HEADINGS. The headings herein are for convenience only and shall not limit or define the meaning of the provisions of this Note. 14. JURISDICTION; SERVICE OF PROCESS. Borrowers agree that in any action or proceeding brought on or in connection with this Note (i) the state courts of the State of New York, or (in a case involving diversity of citizenship) the United States District Court in New York, New York, shall have jurisdiction of any such action or proceeding, (ii) service of any summons and complaint or other process in any such action or proceeding may be made by the Lender upon Borrowers by registered or certified mail directed to Borrowers at their address referenced herein, Borrowers hereby waiving personal service thereof, and (iii) within thirty (30) days after such mailing Borrowers shall appear or answer to any summons and complaint or other process, and should Borrowers fail to appear to answer within said thirty (30) day period, it shall be deemed in default and judgment may be entered by the Lender against Borrowers for the amount as demanded in any summons or complaint or other process so served. 15. WAIVER OF THE RIGHT TO TRIAL BY JURY. Borrowers hereby irrevocably waive the right to trial by jury in any action, proceeding, claim, or counterclaim, whether in contract or tort, at law or in equity, in any manner connected with this note or any transactions hereunder. IN WITNESS WHEREOF, Borrowers have caused this Note to be executed and delivered as of the day and year and at the place first above written. BROOKLYN CHEESECAKE & DESSERTS, INC., formerly known as CREATIVE BAKERIES, INC. -------------------------------------------------- By: Ronald Schutte, Chief Executive Officer J.M. SPECIALTIES, INC., A NEW JERSEY CORPORATION -------------------------------------------------- By: Ronald L. Schutte, CEO & President CONFIRMATION IN WITNESS WHEREOF, on behalf of and upon due authorization from the Board of Directors of Brooklyn Cheesecake & Desserts, Inc., formerly known as Creative Bakeries, Inc. ("Corporation"), the director below has read and understands, and hereby approves, confirms, and ratifies this Note on behalf of the Board of Directors as of the date first written above; and the director below further approves, confirms, and ratifies on behalf of the Board of Directors the execution and delivery of this Note and all the acts by Ronald L. Schutte performed on behalf of the Corporation in connection with this Note. By: --------------------------- Name: Carmelo L. Foti Title: Director Page 5 of 5 EX-10.34 7 v016391_ex10-34.txt Exhibit 10.34 EMPLOYMENT AGREEMENT AGREEMENT dated as of the 1st day of January 2005, between Brooklyn Cheesecake & Desserts Company, Inc., a New York corporation, with an office at 20 Passaic Avenue, Fairfield, New Jersey 07004 (the "Company"), and Ronald L. Schutte, residing at 360 Hollywood Avenue, Yonkers, New York 10707 (the "Employee"). WITNESSETH: WHEREAS, the Employee is currently the Chief Executive Officer of the Company; and WHEREAS, the Company desires to continue to employ the Employee as the Chief Executive Officer, and the Employee is willing to continue such employment for a period of three (3) years from the date of this Agreement, all on the terms hereinafter set forth; NOW, THEREFORE, the parties agree as follows: 1. Employment. The Company hereby employs the Employee as its Chief Executive Officer on the terms set forth hereinafter until the Expiration Date of this Agreement, subject to any earlier termination as provided for by this Agreement, and the Employee hereby accepts such employment. The Expiration Date of this Agreement shall be the third anniversary of the date of this Agreement. Except as otherwise provided for in this Agreement, in the event the Company terminates employment of the Employee for "Cause" or the Employee wrongfully terminates this Agreement or the Company terminates this Agreement because of the material breach of this Agreement by the Employee, the Company shall be not be liable to perform its obligations under the terms of this Agreement. "Cause" means a breach of fiduciary duty or duty of loyalty to the Company, misappropriation of any asset or opportunity of the Company, failure to perform one's duties (other than because of the Company's failure to pay compensation as provided in this Agreement or because of illness, accident, or other disability to the extent permitted in this Agreement), failure to perform one's duties in a competent manner, any other material breach of this Agreement, or indictment for any felony regardless of whether the charge relates to the Company. Except as otherwise provided for in this Agreement, in the event that the Company terminates employment of the Employee without Cause or wrongfully terminates this Agreement or the Employee terminates this Agreement because of the material breach of this Agreement by the Company, the Company shall be liable to perform its obligations under the terms of this Agreement, which shall include making payments to the Employee pursuant to Section 4 of this Agreement until the Expiration Date, and the Company shall pay the Employee severance pay in the amount of Two Hundred Thousand United States Dollars (U.S.$200,000), which shall be in addition to any amounts that may be paid to the Employee pursuant to this Agreement or under law. Page 1 2. Duties. During his employment, the Employee shall have the title and serve as the Chief Executive Officer of the Company and shall perform such reasonable executive duties compatible with his position. The office of the Company located at 20 Passaic Avenue, Fairfield, New Jersey 07004 shall constitute the Employee's base of operations. The Company may change the base of operations to anywhere within a radius of fifty (50) miles from the Company's present location, and the Employee shall not be required to render services on a permanent basis outside of this area. The Employee, though, shall render services away from this area on a temporary basis and travel wherever the Company may reasonably require. If elected a director or officer of the Company or of any affiliate of the Company, the Employee shall serve in that capacity without compensation other than as expressly provided in this Agreement. 3. Extent of Services. The Employee will devote substantially all of his working time to performing his duties under this Agreement, and during his employment with the Company the Employee will not (i) act for his own account in any manner which is competitive with any of the business of the Company or which would interfere with the performance of his duties under this Agreement, or (ii) serve as an officer, director or employee of or advisor to any other business entity which is competitive with any of the business of the Company, or (iii) invest or have any financial interest, direct or indirect, in any business competitive with any of the business of the Company, provided, however, that notwithstanding the foregoing, the Employee may own up to 1% of the outstanding equity securities of any company engaged in any such competitive business whose shares are listed on a national securities exchange or regularly quoted in an over-the-counter market by one or more members of a national or an affiliated securities association. The Employee will be deemed to have an indirect financial interest in any business in which any of the following has any financial interest: the Employee's spouse or any lineal descendant or ancestor of the Employee. The Employee may make personal and business investments, engage in personal and business ventures, enter into other business relationships, and own, operate, or manage businesses that require minimal portions of the Employee's working day, provided that such activities do not interfere with and are not inconsistent with his duties hereunder and are not competitive with any business of the Company. 4. Compensation. 4.1. Salary. The Company shall pay the Employee a salary at the rate of Two Hundred Thousand United States Dollars (U.S.$200,000) per year. One Hundred Thousand United States Dollars (U.S. $100,000) shall payable be in cash in equal, weekly installments, and One Hundred Thousand United States Dollars (U.S.$100,000) shall be payable in either cash or stock, which manner of payment shall be decided upon by mutual agreement between the Company and the Employee. In the event that the Company and Employee mutually agree to have a portion of compensation paid in stock, then the stock price upon which compensation shall be based will be the fair market value of the Page 2 Company's common shares averaged over the twenty (20) trading days immediately preceding the date the Company and the Employee agree to pay the Employee in stock. Thereafter the Company shall review the Employee's salary at least annually, but in any event, although the Company may increase, decrease, or not change the Employee's salary, his salary shall not at any time be less than Two Hundred Thousand United States Dollars (U.S.$200,000) per year. The Employee shall not be entitled to overtime or other additional compensation as a result of services performed during evenings, weekends, or at other times. 4.2. Additional Compensation. The Company may pay the Employee, as additional compensation, a bonus of up to 250% of the salary of the Employee. The Compensation Committee of the Board of Directors shall determine the amount of the bonus. Any such bonus that may be awarded shall be based upon performance-based criteria and goals as established by the Compensation Committee. The Company shall pay any amount owing to the Employee under this Section 4.2 within thirty (30) days after the award of the bonus by the Compensation Committee. 4.3. Deductions. The Company shall deduct and withhold from any compensation payable to the Employee under this Agreement such amounts as the Company is required to deduct and withhold by law. The Company may also deduct and withhold from any such compensation, to the extent permitted by law, such amounts as the Employee may owe to the Company. 4.4. Option Agreement. The Company shall grant the Employee options (the "Options") to purchase Five Hundred Thousand (500,000) common shares of the Company at the price of Eights Cents ($.08) per share. 5. Expenses. 5.1. The Company shall reimburse the Employee for all proper, normal, and reasonable expenses incurred by the Employee in performing his obligations under this Agreement upon the Employee's furnishing the Company with reasonably satisfactory evidence of such expenditures. The Employee shall not incur any unusual or major expenditures without the Company's prior written approval. Without limiting the foregoing, the Employee shall not, without the Company's prior written approval, incur any travel expenses (including the cost of transportation, meals, and lodging) in excess of Fifteen Thousand United States Dollars (U.S.$15,000) in the aggregate for any one trip. Notwithstanding anything else to the contrary in this Agreement, the obligation of the Company to reimburse the Employee for expenses duly incurred pursuant to this Section 5.1 shall survive the termination or expiration of this Agreement and the death or disability of the Employee. Page 3 5.2. The Company shall also furnish the Employee with an automobile allowance in the amount of Five Hundred United States Dollars (U.S.$500.00) per month until the earlier of the expiration or termination of this Agreement. 6. Benefits. 6.1. The Company shall provide the Employee, at the Company's expense, with medical, hospital, and disability insurance that is not less favorable than that which it provides to any other executive employee of the Company. 6.2. The Employee shall be entitled to 20 days vacation during each calendar year (January 1 to December 31) in addition to weekends and any holidays that the Company observes. Unused vacation days and holidays may be accrued from one year to the next up until the earlier of the termination or expiration of this Agreement. At the Employee's sole option, the Company shall pay the Employee for any unused vacation days and holidays that may have accrued to the end of any calendar year or the earlier of the termination or expiration of this Agreement within three (3) days after the Employee provides the Company with written notice of the amount due pursuant to this Section 6.2. In the event of the Employee's death or disability, the Company shall pay the Employee for any unused vacation days and holidays that may have accrued up until the date of death or disability of the Employee within three (3) days of any such date. The amount due for each unused vacation day or holiday shall be calculated by dividing the Employee's annual salary then in effect by two hundred thirty (230) days. 6.3. The Employee's salary and other rights and benefits under this Agreement shall not be suspended or terminated because the Employee is absent from work due to illness, accident or other disability; but the Company may deduct from the Employee's salary under Section 4.1 any payment received by the Employee under any disability insurance purchased by the Company, other than disability insurance mandated by applicable state law, which the Company provides the Employee pursuant to Section 6.1 (the "Disability Insurance Payment"). In calculating deductions to the Employee's salary, Disability Insurance Payments shall first be apportioned to the weekly pay periods and then deducted from the weekly salary installments due the Employee pursuant to Section 4.1. In no event shall Disability Insurance Payments received by the Employee from any insurance company be used to reduce any other amounts that may be due to the Employee during or after the termination or expiration of this Agreement. The provisions of this Section 6.3 shall not limit or affect the rights of the Company under Section 7. Page 4 7. Death And Disability. 7.1. If the Employee dies prior to expiration of the term of his employment, all obligations of the Company to the Employee shall cease as of the date of the employee's death except as otherwise provided for in this Agreement. 7.2. If the Employee is unable to perform substantially all of his duties under this Agreement because of illness, accident, or other disability (collectively referred to as "Disability"), and the Disability continues for more than three (3) consecutive months or an aggregate of more than six (6) months during any 12-month period, then the Company may suspend its obligations to the Employee under Sections 4.1 and 4.2 for a period of up to three (3) months (the "Suspension Period"). The Suspension Period will commence on the date the Company sends the Employee a written notice stating that Suspension Period has commenced (the "Suspension Commencement Date"). The Suspension Period shall terminate at such time that the Disability has, in fact, ended and the Employee has returned to the Company and performs substantially all his duties under this Agreement at which time the suspension of the Company's obligations under Sections 4.1 and 4.2 shall end. In the event that the Disability has not ended and the Employee has not returned to the Company and does not perform substantially all his duties under this Agreement before the end of the Suspension Period, the Company shall have the right to terminate the Employee upon written notice. 7.3. If the Company suspends its obligations under Section 7.2, then for each year ending December 31 during which such suspension is in effect, the additional compensation, if any, to which the Employee is entitled under Section 4.2 shall be that amount which bears the same ratio to the additional compensation to which the Employee would otherwise have been entitled as the number of days in such year during which the suspension was not in effect bears to the total number of days in such year. 7.4. If the Employee or the Company asserts at any time that the Employee is suffering a Disability, the Company may cause the Employee to be examined by a doctor or doctors selected by the Company, and the Employee shall submit to all required examinations and shall cooperate fully with such doctor or doctors and, if requested to do so, shall make available to them his medical records. The Employee's own doctor may be present at any such examinations. 8. Results Of The Employee's Services. 8.1. The Company shall be entitled to and shall own all the results and proceeds of the Employee's services under this Agreement, including, without limitation, all rights throughout the world to any copyright, patent, trademark, or other right and to all ideas, inventions, products, programs, procedures, formats, and other materials of any kind created or developed or worked on by the Employee during his employment by the Company; the same shall be the Page 5 sole and exclusive property of the Company; and the Employee shall not have any right, title, or interest of any nature or kind therein. Without limiting the foregoing, it shall be presumed that any copyright, patent, trademark, or other right and any idea, invention, product, program, procedure, format or material created, developed, or worked on by the Employee at any time during the term of his employment shall be a result or proceed of the Employee's services under this Agreement. The Employee shall take such action and execute such documents as the Company may request to warrant and confirm the Company's title to and ownership of all such results and proceeds and to transfer and assign to the Company any rights which the Employee may have therein. 8.2. The Employee acknowledges that the violation of any of the provisions of Section 8.1 shall cause irreparable loss and harm to the Company which cannot be reasonably or adequately compensated by damages in an action at law, and, accordingly, that the Company shall be entitled, without posting bond or other security, to injunctive and other equitable relief to enforce the provisions of that Section; but no action for any such relief shall be deemed to waive the right of the Company to an action for damages. The Employee acknowledges that he shall not be entitled to any property rights or co-ownership rights in any assets, intellectual property rights, contracts, customer lists, goodwill, copyright, patent, trademark, or other right or in any opportunity, ideas, inventions, products, programs, procedures, formats, and other materials of any kind belonging to the Company or created, developed, or worked on by the Employee during his employment by the Company. 9. Change of Control of the Company. 9.1. If any group of business entities or individuals, which in combination with each other number six (6) or fewer, obtains control of the Company as a result of a sale of stock, merger, sale of substantially all the assets of the Company, or otherwise, then the Employee, at his sole discretion, shall have the right to terminate this Agreement. 9.2. In the event that the membership of the Board of Directors of the Company changes in such a way that the current Board Members duly serving on the Board of Directors as of the date of this Agreement no longer comprise more than two thirds (?) of the membership of the entire Board of Directors, exclusive of any New Board Member or Board Members added to the Board of Directors who were appointed, nominated, or elected through the efforts of the Employee, then the Employee, at his sole discretion, shall have the right to terminate this Agreement. 9.3. If the Employee elects to terminate this Agreement pursuant to this Sections 9.1 and 9.2, the Company shall pay in full to the Employee all the amounts and perform all its obligations due the Employee as if the Employee had fully performed his obligations under this Agreement up until the Expiration Date of this Agreement, and the Employee shall be relieved of any future duty to perform pursuant to this Agreement thereafter. Page 6 9.4. Any termination made by the Employee pursuant to Sections 9.1 and 9.2 shall be effective as of the date the notice of such termination is sent to the Company pursuant to Section 17.4. 9.5. For purposes of Section 9.1, "control of the Company" shall mean a 50% ownership interest in the Company or 50% control of the voting rights of all classes of shares of the Company. 10. Insurance. If the Company desires at any time or from time to time to apply for, in its own name or otherwise, but at its expense, life, health, accident or other insurance covering the Employee, the Company may do so and may take out such insurance for any sum that it deems desirable. The Employee shall have no right, title or interest in or to such insurance. The Employee nevertheless shall assist the Company in procuring the same by submitting from time to time to the customary medical, physical and other examinations, and by signing such applications, statements and other instruments as any reputable insurer may require. 11. No Requirement for Employee to Mitigate Damages. If the Company wrongfully terminates the Employee, or if the Employee terminates his employment because of material breach of this Agreement by the Company, or if the Employee terminates this Agreement pursuant to Section 9 of this Agreement, then the Employee shall not be required to mitigate damages and any income received or earned by the Employee from any source whatsoever after termination of this Agreement shall not reduce the amount of damages obtainable by the Employee from the Company. 12. Negative Covenant. The Employee shall not, during or after the term of this Agreement, disclose to any third person or use or take any personal advantage of any confidential information or any trade secret of any kind or nature obtained by him during the term hereof. 13. Governing Law; Remedies. 13.1. This Agreement shall be governed by and construed in all respects in accordance with the laws of the State of New York, except that no choice of law doctrine shall be used to apply the laws of another jurisdiction. 13.2. The Company and the Employee submit to the jurisdiction of the courts of the State of New York and of the United States located in the County of New York, State of New York, and each agrees not to raise and waives any objection to or defense based on the venue of any such court or forum non conveniens. Page 7 13.3. The Company shall be entitled to injunctive and other equitable relief from the courts as provided in Section 8.2 and as the courts may otherwise determine appropriate; and the Employee agrees that it shall not be a defense to any request for such relief that the Company has an adequate remedy at law. 13.4. A court of competent jurisdiction, if it determines any provision of this Agreement to be unreasonable in scope, time, or geography, is hereby authorized by the Employee and the Company to enforce the same in such narrower scope, shorter time, or lesser geography as such court determines to be reasonable and proper under all the circumstances. 13.5. The respective rights and remedies of the parties are cumulative, and the exercise or enforcement of any one or more of them shall not preclude the parties from exercising or enforcing any other right or remedy. 14. Indemnity. 14.1. To the extent permitted by law, the Company shall indemnify the Employee against any claim or liability and shall hold the Employee harmless from and pay any expenses (including, without limitation, legal fees and court costs), judgments, fines, penalties, settlements and other amounts arising out of or in connection with any act or omission of the Employee performed or made in good faith on behalf of the Company pursuant to this Agreement, except for acts of gross negligence or willful misconduct or criminal acts. The Company shall not be obligated to pay the Employee's legal fees and related charges of counsel during any period that the Company furnishes, at its expense, counsel to defend the Employee; but any counsel furnished by the Company must be reasonably satisfactory to the Employee. The foregoing provisions shall survive termination of the Employee's employment with the Company for any reason whatsoever and regardless of fault. 14.2. Without limitation to the foregoing, the Company shall provide the Employee with coverage under the Company's officers' and directors' liability insurance policy, which shall contain such terms and conditions as agreed upon by the Company, covering acts or omissions by the Employee in the performance of his duties to the Company under this Agreement as an officer and, if he serves as such, as a director of the Company. If such insurance is not occurrence-based, the Company shall continue insurance coverage for any potential claims that may be made against the Employee pursuant to this Section 14 for a period of one (1) year after his employment with the Company terminates for any reason, except for acts of gross negligence or willful misconduct or criminal acts. The Company's insurance policy shall protect against and pay $1,000,000 for each loss and in aggregate for all losses (inclusive of defense costs, charges, and expenses) for each policy period with a retention of $150,000 for each claim. The Employee shall have nonexclusive coverage under the Company's directors' and officers' liability insurance policy as an "Insured Person," which definition shall include, but not be limited to, any past, present, or future director or officer of the Company. The Employee acknowledges that any payments that may be made pursuant to the directors' and officers' liability insurance policy may be limited as a result of payments made to any other past, present, or future director or officer of the Company, retention limits, and coverage limits. Page 8 15. Severability. If any provision of this Agreement or the application of any such provision to any person or circumstance is held invalid, the remainder of this Agreement, and the application of such provision other than to the extent it is held invalid, shall not be invalidated or affected thereby. 16. Waiver. No failure by the parties to this Agreement to insist upon the strict performance of any term or condition of this Agreement or to exercise any right or remedy available to them shall constitute a waiver. No breach or default of any provision of this Agreement shall be waived, altered, or modified, and the parties may not waive any of its rights, except by a duly executed written instrument. No waiver of any breach or default shall affect or alter any term or condition of this Agreement, and such term or condition shall continue in full force and effect with respect to any other then existing or subsequent breach or default thereof. 17. Miscellaneous. 17.1. Amendments. This Agreement may be amended only by an instrument in writing signed by the Company and the Employee. 17.2. Binding Effect; Assignment. Neither the Company nor the Employee may, without the other's prior written consent, transfer or assign any of its or his rights or obligations under this Agreement, and any such transfer or assignment or attempt thereat without such consent shall be null and void. In the event that the Company does transfer or assign any of its rights and obligations under this Agreement with the prior written consent of the Employee pursuant to this Section 17.2, such assignment and transfer shall be enforceable provided that the Company shall not be released from any of its obligations under this Agreement, and any transferee or assignee shall agree in writing to assume all the obligations of the Company hereunder. 17.3. Successors. This Agreement shall be binding upon and inure to the benefit of permitted successors and assigns, heirs, executors, and administrators of the respective parties. 17.4. Notices. All notices under or in connection with this Agreement shall be in writing and may be delivered personally or sent by certified or registered mail, return receipt requested, by a recognized overnight courier, or by facsimile transmission to the parties at their addresses and facsimile numbers set forth below or to such other addresses and fax numbers as to which notice is given: Page 9 (a) if to the Company: Brooklyn Cheesecake & Desserts Company, Inc. 20 Passaic Avenue Fairfield, New Jersey 07004 Facsimile: 973-808-0203 (b) if to the Employee: Ronald L. Schutte 360 Hollywood Avenue Yonkers, New York 10707 Facsimile: 914-961-3896 Notice shall be deemed given upon receipt. 17.5. Headings. Section headings are for purposes of convenient reference only and shall not affect the meaning or interpretation of any provision of this Agreement. 17.6. Entire Agreement. This Agreement constitutes the entire agreement of the parties and supersedes any and all prior agreements or understandings, whether written or oral, between them. There are no restrictions, promises, representations, warranties, covenants, or undertakings, other than those expressly set forth or referred to herein. 17.7. Pronouns. All pronouns and any variation thereof shall be deemed to refer to the masculine, feminine, or neuter, singular or plural, as the identity of the person or persons may require. 17.8. Rules of Construction. Each of the parties hereto has reviewed this Agreement and agrees that the normal rule of construction that any ambiguity or uncertainty in a writing be interpreted against the party drafting the writing shall not apply in any action or proceeding involving this Agreement. 17.9. Acknowledgment. The parties hereto acknowledge that they have read and understand this Agreement and agree to be bound by its terms and conditions. Employee acknowledges that he has been duly informed that he should review this Agreement with his independent counsel. Employee further acknowledges that he has had the opportunity to consult with his independent counsel. 17.10.Execution. This Agreement may be executed in counterparts, and as so executed shall constitute one agreement binding on the parties. NO FURTHER TEXT ON THIS PAGE SIGNATURE PAGE FOLLOWS Page 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. Company: Brooklyn Cheesecake & Desserts Company, Inc. By: ----------------------------- Name: Ronald L. Schutte Title: Chief Executive Officer Employee: By: ----------------------------- Name: Ronald L. Schutte CONFIRMATION IN WITNESS WHEREOF, on behalf of and upon due authorization from the Board of Directors of Brooklyn Cheesecake & Desserts Company, Inc. ("Company"), the director below has read and understands, and hereby approves, confirms, and ratifies this Agreement on behalf of the Board of Directors as of the date first written above; and the director below further approves, confirms, and ratifies on behalf of the Board of Directors the execution and delivery of this Agreement and all the acts by Ronald L. Schutte performed on behalf of the Company in connection with this Agreement. By: ----------------------------- Name: Carmelo L. Foti Title: Director Page 11 EX-10.35 8 v016391_ex10-35.txt Exhibit 10.35 EMPLOYMENT AGREEMENT AGREEMENT dated as of the 1st day of January 2005, between Brooklyn Cheesecake & Desserts Company, Inc., a New York corporation, with an office at 20 Passaic Avenue, Fairfield, New Jersey 07004 (the "Company"), and Anthony J. Merante, residing at 46 Davenport Road, Yonkers, New York 10710 (the "Employee"). WITNESSETH: WHEREAS, the Company desires to employ the Employee as the Chief Financial Officer, and the Employee is willing to continue such employment for a period of three (3) years from the date of this Agreement, all on the terms hereinafter set forth; NOW, THEREFORE, the parties agree as follows: 1. Employment. The Company hereby employs the Employee as its Chief Financial Officer on the terms set forth hereinafter until the Expiration Date of this Agreement, subject to any earlier termination as provided for by this Agreement, and the Employee hereby accepts such employment. The Expiration Date of this Agreement shall be the third anniversary of the date of this Agreement. Except as otherwise provided for in this Agreement, in the event the Company terminates employment of the Employee for "Cause" or the Employee wrongfully terminates this Agreement or the Company terminates this Agreement because of the material breach of this Agreement by the Employee, the Company shall be not be liable to perform its obligations under the terms of this Agreement. "Cause" means a breach of fiduciary duty or duty of loyalty to the Company, misappropriation of any asset or opportunity of the Company, failure to perform one's duties (other than because of the Company's failure to pay compensation as provided in this Agreement or because of illness, accident, or other disability to the extent permitted in this Agreement), failure to perform one's duties in a competent manner, any other material breach of this Agreement, or indictment for any felony regardless of whether the charge relates to the Company. Except as otherwise provided for in this Agreement, in the event that the Company terminates employment of the Employee without Cause or wrongfully terminates this Agreement or the Employee terminates this Agreement because of the material breach of this Agreement by the Company, the Company shall be liable to perform its obligations under the terms of this Agreement, which shall include making payments to the Employee pursuant to Section 4 of this Agreement until the Expiration Date, and the Company shall pay the Employee severance pay in the amount of Ninety-six Thousand United States Dollars (U.S.$96,000), which shall be in addition to any amounts that may be paid to the Employee pursuant to this Agreement or under law. Page 1 2. Duties. During his employment, the Employee shall have the title and serve as the Chief Financial Officer of the Company and shall perform such reasonable executive duties compatible with his position. The office of the Company located at 20 Passaic Avenue, Fairfield, New Jersey 07004 shall constitute the Employee's base of operations. The Company may change the base of operations to anywhere within a radius of fifty (50) miles from the Company's present location, and the Employee shall not be required to render services on a permanent basis outside of this area. The Employee, though, shall render services away from this area on a temporary basis and travel wherever the Company may reasonably require. If elected a director or officer of the Company or of any affiliate of the Company, the Employee shall serve in that capacity without compensation other than as expressly provided in this Agreement. 3. Extent of Services. The Employee will devote substantially all of his working time to performing his duties under this Agreement, and during his employment with the Company the Employee will not (i) act for his own account in any manner which is competitive with any of the business of the Company or which would interfere with the performance of his duties under this Agreement, or (ii) serve as an officer, director or employee of or advisor to any other business entity which is competitive with any of the business of the Company, or (iii) invest or have any financial interest, direct or indirect, in any business competitive with any of the business of the Company, provided, however, that notwithstanding the foregoing, the Employee may own up to 1% of the outstanding equity securities of any company engaged in any such competitive business whose shares are listed on a national securities exchange or regularly quoted in an over-the-counter market by one or more members of a national or an affiliated securities association. The Employee will be deemed to have an indirect financial interest in any business in which any of the following has any financial interest: the Employee's spouse or any lineal descendant or ancestor of the Employee. The Employee may make personal and business investments, engage in personal and business ventures, enter into other business relationships, and own, operate, or manage businesses that require minimal portions of the Employee's working day, provided that such activities do not interfere with and are not inconsistent with his duties hereunder and are not competitive with any business of the Company. 4. Compensation. 4.1. Salary. The Company shall pay the Employee a salary at the rate of Ninety-six Thousand United States Dollars (U.S.$96,000) per year. Forty-eight Thousand United States Dollars (U.S. $48,000) shall payable be in cash in equal, weekly installments, and Forty-eight Thousand United States Dollars (U.S. $48,000) shall be payable in either cash or stock, which manner of payment shall be decided upon by mutual agreement between the Company and the Employee. In the event that the Company and Employee mutually agree to have a portion of compensation paid in stock, then the stock price upon which compensation shall be based will be the fair market value of the Company's common shares averaged over the twenty (20) trading days immediately preceding the date the Company and the Employee agree to pay the Employee in stock. Thereafter the Company shall review the Employee's salary at least annually, but in any event, although the Company may increase, decrease, or not change the Employee's salary, his salary shall not at any time be less than Ninety-six Thousand United States Dollars (U.S.$96,000) per year. The Employee shall not be entitled to overtime or other additional compensation as a result of services performed during evenings, weekends, or at other times. Page 2 4.2. Additional Compensation. The Company may pay the Employee, as additional compensation, a bonus of up to 250% of the salary of the Employee. The Compensation Committee of the Board of Directors shall determine the amount of the bonus. Any such bonus that may be awarded shall be based upon performance-based criteria and goals as established by the Compensation Committee. The Company shall pay any amount owing to the Employee under this Section 4.2 within thirty (30) days after the award of the bonus by the Compensation Committee. 4.3. Deductions. The Company shall deduct and withhold from any compensation payable to the Employee under this Agreement such amounts as the Company is required to deduct and withhold by law. The Company may also deduct and withhold from any such compensation, to the extent permitted by law, such amounts as the Employee may owe to the Company. 4.4. Option Agreement. The Company shall grant the Employee options (the "Options") to purchase Two Hundred Thousand (200,000) common shares of the Company at the price of Eights Cents ($.08) per share. 5. Expenses. 5.1. The Company shall reimburse the Employee for all proper, normal, and reasonable expenses incurred by the Employee in performing his obligations under this Agreement upon the Employee's furnishing the Company with reasonably satisfactory evidence of such expenditures. The Employee shall not incur any unusual or major expenditures without the Company's prior written approval. Without limiting the foregoing, the Employee shall not, without the Company's prior written approval, incur any travel expenses (including the cost of transportation, meals, and lodging) in excess of Fifteen Thousand United States Dollars (U.S.$15,000) in the aggregate for any one trip. Notwithstanding anything else to the contrary in this Agreement, the obligation of the Company to reimburse the Employee for expenses duly incurred pursuant to this Section 5.1 shall survive the termination or expiration of this Agreement and the death or disability of the Employee. 6. Benefits. 6.1. The Company shall provide the Employee, at the Company's expense, with medical, hospital, and disability insurance that is not less favorable than that which it provides to any other executive employee of the Company. Page 3 6.2. The Employee shall be entitled to 20 days vacation during each calendar year (January 1 to December 31) in addition to weekends and any holidays that the Company observes. Unused vacation days and holidays may be accrued from one year to the next up until the earlier of the termination or expiration of this Agreement. At the Employee's sole option, the Company shall pay the Employee for any unused vacation days and holidays that may have accrued to the end of any calendar year or the earlier of the termination or expiration of this Agreement within three (3) days after the Employee provides the Company with written notice of the amount due pursuant to this Section 6.2. In the event of the Employee's death or disability, the Company shall pay the Employee for any unused vacation days and holidays that may have accrued up until the date of death or disability of the Employee within three (3) days of any such date. The amount due for each unused vacation day or holiday shall be calculated by dividing the Employee's annual salary then in effect by two hundred thirty (230) days. 6.3. The Employee's salary and other rights and benefits under this Agreement shall not be suspended or terminated because the Employee is absent from work due to illness, accident or other disability; but the Company may deduct from the Employee's salary under Section 4.1 any payment received by the Employee under any disability insurance purchased by the Company, other than disability insurance mandated by applicable state law, which the Company provides the Employee pursuant to Section 6.1 (the "Disability Insurance Payment"). In calculating deductions to the Employee's salary, Disability Insurance Payments shall first be apportioned to the weekly pay periods and then deducted from the weekly salary installments due the Employee pursuant to Section 4.1. In no event shall Disability Insurance Payments received by the Employee from any insurance company be used to reduce any other amounts that may be due to the Employee during or after the termination or expiration of this Agreement. The provisions of this Section 6.3 shall not limit or affect the rights of the Company under Section 7. 7. Death And Disability. 7.1. If the Employee dies prior to expiration of the term of his employment, all obligations of the Company to the Employee shall cease as of the date of the employee's death except as otherwise provided for in this Agreement. 7.2. If the Employee is unable to perform substantially all of his duties under this Agreement because of illness, accident, or other disability (collectively referred to as "Disability"), and the Disability continues for more than three (3) consecutive months or an aggregate of more than six (6) months during any 12-month period, then the Company may suspend its obligations to the Employee under Sections 4.1 and 4.2 for a period of up to three (3) months (the "Suspension Period"). The Suspension Period will commence on the Page 4 date the Company sends the Employee a written notice stating that Suspension Period has commenced (the "Suspension Commencement Date"). The Suspension Period shall terminate at such time that the Disability has, in fact, ended and the Employee has returned to the Company and performs substantially all his duties under this Agreement at which time the suspension of the Company's obligations under Sections 4.1 and 4.2 shall end. In the event that the Disability has not ended and the Employee has not returned to the Company and does not perform substantially all his duties under this Agreement before the end of the Suspension Period, the Company shall have the right to terminate the Employee upon written notice. 7.3. If the Company suspends its obligations under Section 7.2, then for each year ending December 31 during which such suspension is in effect, the additional compensation, if any, to which the Employee is entitled under Section 4.2 shall be that amount which bears the same ratio to the additional compensation to which the Employee would otherwise have been entitled as the number of days in such year during which the suspension was not in effect bears to the total number of days in such year. 7.4. If the Employee or the Company asserts at any time that the Employee is suffering a Disability, the Company may cause the Employee to be examined by a doctor or doctors selected by the Company, and the Employee shall submit to all required examinations and shall cooperate fully with such doctor or doctors and, if requested to do so, shall make available to them his medical records. The Employee's own doctor may be present at any such examinations. 8. Results Of The Employee's Services. 8.1. The Company shall be entitled to and shall own all the results and proceeds of the Employee's services under this Agreement, including, without limitation, all rights throughout the world to any copyright, patent, trademark, or other right and to all ideas, inventions, products, programs, procedures, formats, and other materials of any kind created or developed or worked on by the Employee during his employment by the Company; the same shall be the sole and exclusive property of the Company; and the Employee shall not have any right, title, or interest of any nature or kind therein. Without limiting the foregoing, it shall be presumed that any copyright, patent, trademark, or other right and any idea, invention, product, program, procedure, format or material created, developed, or worked on by the Employee at any time during the term of his employment shall be a result or proceed of the Employee's services under this Agreement. The Employee shall take such action and execute such documents as the Company may request to warrant and confirm the Company's title to and ownership of all such results and proceeds and to transfer and assign to the Company any rights which the Employee may have therein. Page 5 8.2. The Employee acknowledges that the violation of any of the provisions of Section 8.1 shall cause irreparable loss and harm to the Company which cannot be reasonably or adequately compensated by damages in an action at law, and, accordingly, that the Company shall be entitled, without posting bond or other security, to injunctive and other equitable relief to enforce the provisions of that Section; but no action for any such relief shall be deemed to waive the right of the Company to an action for damages. The Employee acknowledges that he shall not be entitled to any property rights or co-ownership rights in any assets, intellectual property rights, contracts, customer lists, goodwill, copyright, patent, trademark, or other right or in any opportunity, ideas, inventions, products, programs, procedures, formats, and other materials of any kind belonging to the Company or created, developed, or worked on by the Employee during his employment by the Company. 9. Change of Control of the Company. 9.1. If any group of business entities or individuals, which in combination with each other number six (6) or fewer, obtains control of the Company as a result of a sale of stock, merger, sale of substantially all the assets of the Company, or otherwise, then the Employee, at his sole discretion, shall have the right to terminate this Agreement. 9.2. In the event that the membership of the Board of Directors of the Company changes in such a way that the current Board Members duly serving on the Board of Directors as of the date of this Agreement no longer comprise more than two thirds (?) of the membership of the entire Board of Directors, exclusive of any New Board Member or Board Members added to the Board of Directors who were appointed, nominated, or elected through the efforts of the Employee, then the Employee, at his sole discretion, shall have the right to terminate this Agreement. 9.3. If the Employee elects to terminate this Agreement pursuant to this Sections 9.1 and 9.2, the Company shall pay in full to the Employee all the amounts and perform all its obligations due the Employee as if the Employee had fully performed his obligations under this Agreement up until the Expiration Date of this Agreement, and the Employee shall be relieved of any future duty to perform pursuant to this Agreement thereafter. 9.4. Any termination made by the Employee pursuant to Sections 9.1 and 9.2 shall be effective as of the date the notice of such termination is sent to the Company pursuant to Section 17.4. 9.5. For purposes of Section 9.1, "control of the Company" shall mean a 50% ownership interest in the Company or 50% control of the voting rights of all classes of shares of the Company. Page 6 10. Insurance. If the Company desires at any time or from time to time to apply for, in its own name or otherwise, but at its expense, life, health, accident or other insurance covering the Employee, the Company may do so and may take out such insurance for any sum that it deems desirable. The Employee shall have no right, title or interest in or to such insurance. The Employee nevertheless shall assist the Company in procuring the same by submitting from time to time to the customary medical, physical and other examinations, and by signing such applications, statements and other instruments as any reputable insurer may require. 11. No Requirement for Employee to Mitigate Damages. If the Company wrongfully terminates the Employee, or if the Employee terminates his employment because of material breach of this Agreement by the Company, or if the Employee terminates this Agreement pursuant to Section 9 of this Agreement, then the Employee shall not be required to mitigate damages and any income received or earned by the Employee from any source whatsoever after termination of this Agreement shall not reduce the amount of damages obtainable by the Employee from the Company. 12. Negative Covenant. The Employee shall not, during or after the term of this Agreement, disclose to any third person or use or take any personal advantage of any confidential information or any trade secret of any kind or nature obtained by him during the term hereof. 13. Governing Law; Remedies. 13.1. This Agreement shall be governed by and construed in all respects in accordance with the laws of the State of New York, except that no choice of law doctrine shall be used to apply the laws of another jurisdiction. 13.2. The Company and the Employee submit to the jurisdiction of the courts of the State of New York and of the United States located in the County of New York, State of New York, and each agrees not to raise and waives any objection to or defense based on the venue of any such court or forum non conveniens. 13.3. The Company shall be entitled to injunctive and other equitable relief from the courts as provided in Section 8.2 and as the courts may otherwise determine appropriate; and the Employee agrees that it shall not be a defense to any request for such relief that the Company has an adequate remedy at law. 13.4. A court of competent jurisdiction, if it determines any provision of this Agreement to be unreasonable in scope, time, or geography, is hereby authorized by the Employee and the Company to enforce the same in such narrower scope, shorter time, or lesser geography as such court determines to be reasonable and proper under all the circumstances. Page 7 13.5. The respective rights and remedies of the parties are cumulative, and the exercise or enforcement of any one or more of them shall not preclude the parties from exercising or enforcing any other right or remedy. 14. Indemnity. 14.1. To the extent permitted by law, the Company shall indemnify the Employee against any claim or liability and shall hold the Employee harmless from and pay any expenses (including, without limitation, legal fees and court costs), judgments, fines, penalties, settlements and other amounts arising out of or in connection with any act or omission of the Employee performed or made in good faith on behalf of the Company pursuant to this Agreement, except for acts of gross negligence or willful misconduct or criminal acts. The Company shall not be obligated to pay the Employee's legal fees and related charges of counsel during any period that the Company furnishes, at its expense, counsel to defend the Employee; but any counsel furnished by the Company must be reasonably satisfactory to the Employee. The foregoing provisions shall survive termination of the Employee's employment with the Company for any reason whatsoever and regardless of fault. 14.2. Without limitation to the foregoing, the Company shall provide the Employee with coverage under the Company's officers' and directors' liability insurance policy, which shall contain such terms and conditions as agreed upon by the Company, covering acts or omissions by the Employee in the performance of his duties to the Company under this Agreement as an officer and, if he serves as such, as a director of the Company. If such insurance is not occurrence-based, the Company shall continue insurance coverage for any potential claims that may be made against the Employee pursuant to this Section 14 for a period of one (1) year after his employment with the Company terminates for any reason, except for acts of gross negligence or willful misconduct or criminal acts. The Company's insurance policy shall protect against and pay $1,000,000 for each loss and in aggregate for all losses (inclusive of defense costs, charges, and expenses) for each policy period with a retention of $150,000 for each claim. The Employee shall have nonexclusive coverage under the Company's directors' and officers' liability insurance policy as an "Insured Person," which definition shall include, but not be limited to, any past, present, or future director or officer of the Company. The Employee acknowledges that any payments that may be made pursuant to the directors' and officers' liability insurance policy may be limited as a result of payments made to any other past, present, or future director or officer of the Company, retention limits, and coverage limits. 15. Severability. If any provision of this Agreement or the application of any such provision to any person or circumstance is held invalid, the remainder of this Agreement, and the application of such provision other than to the extent it is held invalid, shall not be invalidated or affected thereby. Page 8 16. Waiver. No failure by the parties to this Agreement to insist upon the strict performance of any term or condition of this Agreement or to exercise any right or remedy available to them shall constitute a waiver. No breach or default of any provision of this Agreement shall be waived, altered, or modified, and the parties may not waive any of its rights, except by a duly executed written instrument. No waiver of any breach or default shall affect or alter any term or condition of this Agreement, and such term or condition shall continue in full force and effect with respect to any other then existing or subsequent breach or default thereof. 17. Miscellaneous. 17.1. Amendments. This Agreement may be amended only by an instrument in writing signed by the Company and the Employee. 17.2. Binding Effect; Assignment. Neither the Company nor the Employee may, without the other's prior written consent, transfer or assign any of its or his rights or obligations under this Agreement, and any such transfer or assignment or attempt thereat without such consent shall be null and void. In the event that the Company does transfer or assign any of its rights and obligations under this Agreement with the prior written consent of the Employee pursuant to this Section 17.2, such assignment and transfer shall be enforceable provided that the Company shall not be released from any of its obligations under this Agreement, and any transferee or assignee shall agree in writing to assume all the obligations of the Company hereunder. 17.3. Successors. This Agreement shall be binding upon and inure to the benefit of permitted successors and assigns, heirs, executors, and administrators of the respective parties. 17.4. Notices. All notices under or in connection with this Agreement shall be in writing and may be delivered personally or sent by certified or registered mail, return receipt requested, by a recognized overnight courier, or by facsimile transmission to the parties at their addresses and facsimile numbers set forth below or to such other addresses and fax numbers as to which notice is given: (a) if to the Company: Brooklyn Cheesecake & Desserts Company, Inc. 20 Passaic Avenue Fairfield, New Jersey 07004 Facsimile: 973-808-0203 Page 9 (b) if to the Employee: Anthony J. Merante 46 Davenport Avenue Yonkers, New York 10710 Facsimile: 914-629-0887 Notice shall be deemed given upon receipt. 17.5. Headings. Section headings are for purposes of convenient reference only and shall not affect the meaning or interpretation of any provision of this Agreement. 17.6. Entire Agreement. This Agreement constitutes the entire agreement of the parties and supersedes any and all prior agreements or understandings, whether written or oral, between them. There are no restrictions, promises, representations, warranties, covenants, or undertakings, other than those expressly set forth or referred to herein. 17.7. Pronouns. All pronouns and any variation thereof shall be deemed to refer to the masculine, feminine, or neuter, singular or plural, as the identity of the person or persons may require. 17.8. Rules of Construction. Each of the parties hereto has reviewed this Agreement and agrees that the normal rule of construction that any ambiguity or uncertainty in a writing be interpreted against the party drafting the writing shall not apply in any action or proceeding involving this Agreement. 17.9. Acknowledgment. The parties hereto acknowledge that they have read and understand this Agreement and agree to be bound by its terms and conditions. Employee acknowledges that he has been duly informed that he should review this Agreement with his independent counsel. Employee further acknowledges that he has had the opportunity to consult with his independent counsel. 17.10.Execution. This Agreement may be executed in counterparts, and as so executed shall constitute one agreement binding on the parties. NO FURTHER TEXT ON THIS PAGE SIGNATURE PAGE FOLLOWS Page 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. Company: Brooklyn Cheesecake & Desserts Company, Inc. By: ---------------------------- Name: Ronald L. Schutte Title: Chief Executive Officer Employee: By: ---------------------------- Name: Anthony J. Merante CONFIRMATION IN WITNESS WHEREOF, on behalf of and upon due authorization from the Board of Directors of Brooklyn Cheesecake & Desserts Company, Inc. ("Company"), the director below has read and understands, and hereby approves, confirms, and ratifies this Agreement on behalf of the Board of Directors as of the date first written above; and the director below further approves, confirms, and ratifies on behalf of the Board of Directors the execution and delivery of this Agreement and all the acts by Ronald L. Schutte performed on behalf of the Company in connection with this Agreement. By: ---------------------------- Name: Carmelo L. Foti Title: Director EX-10.36 9 v016391_ex10-36.txt Exhibit 10.36 Website Development and Service Agreement SERVICE AGREEMENT the (Agreement) made as of the 1st day of March, 2005 (the Effective Date) by and between Brooklyn Cheesecake & Desserts Company, Inc. a corporation organized and operating under the laws of New York and having offices at 20 Passaic Avenue, Fairfield, New Jersey 07004 (the "Client") and Burbro Capital, Inc, a corporation organized and operating under the laws of New York and having offices at 4 Five Ponds Road, Waccabuc, New York 10509. WHEREAS, Consultants are in the business of providing certain software and computer consulting services pertaining to the international network of computers and computer networks known by the name Internet; and WHEREAS, Client wishes to retain the services of Consultants to: (i) locate, establish, install and maintain computer hardware and software to provide Client with a system to provide information via the World Wide Web protocol of the Internet (the "World Wide Web"), and allow Internet users to make transactions (the "Web and Database Server"); (ii) assist Client with Client's development and operation of a content server to make Client-related multimedia information accessible via the World Wide Web to Internet users (the "Client Server") (the Client's presence on the World Wide Web under this Agreement by the Web and Database Server and the Client Server referred to herein as the "Site"); (iii) promote the Site; (iv) develop and improve computer programs and other deliverables to be used in connection with the Site; and (v) consult with Client with respect to the ultimate transfer of all hardware and software components of the Web and Database Server to Client's location and facilities. WHEREAS, Consultants wish to provide Client with such services; NOW, THEREFORE, in consideration of the conditions and covenants set forth hereinafter, it is agreed as follows: 1. Retention Client hereby retains Consultants and Consultants hereby accept such retention by the Client. 2. Services Upon the terms and subject to the conditions contained herein, Consultants agree to provide to Client consulting services as described in statements of work to be agreed to in writing between the parties from time to time during the term hereof (the "Statements of Work") and which shall be consecutively numbered and annexed hereto as Schedule A. Such services shall be provided in accordance with the provisions of this Agreement and the applicable Statement of Work. 3. Additional Services In addition to the services described in this agreement, Consultants shall perform the following additional services in accordance with the timetable set forth as Schedule B (the "Timetable"): 3.1. Configuration and Operation of Web and Database Server Consultants will configure and operate the Web and Database Server at an agreed upon fully-qualified hosting center as outlined in Schedule C. Consultants and authorized third parties will have access to the Web and Database Server. No third-party will have access to the Web and Database Server. Without limitation of the foregoing, to the extent that any third party software licenses are required to be obtained by Consultants to perform their obligations hereunder, Consultants shall obtain such licenses on Client's behalf at no additional cost. -1- 3.2. Removed 3.3. Removed 3.4. Translations into HTML OR EQUIVALENT Format Provide consulting services to Client and translate Client-supplied text, graphics and other materials into Hypertext Markup Language (HTML OR EQUIVALENT) format for use on the Site (such materials, as periodically updated by Client as part of the Client Server, shall be known as the "Internet Display"). Additional obligations of the parties with respect to the development of the Internet Display are further set forth below in Section 4. 3.5. Site Related Programs and Other Deliverables Develop, in accordance With Section 5 herein, the Site Related Programs and other Deliverables (as defined herein). 3.6. Site Related Software Developed by Client Copy, reformat, improve, review or advise on Site related software developed by the Client, as requested by Client and as set forth in any Statement of Work. 3.7. Software Scripting Routines In accordance with the Timetable, develop software scripting routines as set forth in Schedules A and B, Consultants will generate HTML OR EQUIVALENT to make Client's catalog information of retail merchandise appear on the Web and Database Server as specified herein (the catalog, together with the software routines and underlying database is referred to herein as (the "Catalog") and install, configure and customize the Web and Database Server to enable and track purchases from the Catalog. 3.8. Recordkeeping Manage the recordation of all information made available from people accessing the Site, or purchasing items from the Catalog, including, without limitation name, address, credit card numbers, products requested and any other information directly or indirectly obtained from such users (collectively, "User Information"). 3.9. Removed 3.10 Return of Merchandise. Consultants shall have no liability or obligations in connection with merchandise acquired by credit card which is subsequently returned to Client by customer(s) or for the credit of Client's customers, unless such return is caused by fraud on the part of Consultants or Consultants' gross negligence. 3.11. Removed 3.12. Training Provide such training, advice and information concerning the use and features of the Site as Client shall reasonably request. -2- 4. Development of the Internet Display Consultants shall develop the Internet Display for use on the Client Server. Upon the provision by Client to Consultants of text, graphics or other information (collectively, "Content") for use in the Internet Display, Consultant shall promptly adapt, translate and reformat the Content as necessary into HTML OR EQUIVALENT format. Client shall make the final determination of all Content to be used on the Internet Display. All photographs, trademarks, images or other works owned or controlled by Client and which are specified by Client for inclusion in the Internet Display shall be provided by Client in clear and camera ready form necessary for digital translation, or in other format agreed upon by the parties. The completed version of the Internet Display shall be provided to Client for acceptance in accordance with the Timetable set forth in Schedule B. 5. Statements of Work. 5.1. Site Related Programs As used in this Agreement, the term "Site Related Programs" shall mean the software deliverables (other than the Internet Display) to be produced by Consultants hereunder. 5.2. Milestone Schedule As used in this Agreement, the term "Milestone Schedule" shall mean the schedule for the development of Site Related Programs as set forth as part of the relevant Statement of Work. 5.3. Specifications As used in this Agreement, the term "Specifications" shall mean the requirements for the development of a Site Related Program or other deliverable, including operational and functional capabilities and performance, all as set forth as part of the relevant Statement of Work. 5.4. Information to be Included in the Statement of Work The Statement of Work shall include the Specifications, Milestone Schedule, and any other information that may reasonably and customarily be included to provide the services desired by Client All work hereunder, shall be compensated pursuant to Schedule D. Consultants shall prepare a Statement of Work in good faith. Consultants shall not be required to commence work until both parties have agreed in writing to the Statement of Work. The performance of the services required in the Statement of Work shall be completed in accordance with the time frame set forth in the Statement of Work. 6. Delivery and Acceptance of Deliverables As used in this Agreement, the term "Deliverable" shall mean any product produced by Consultant hereunder in connection with the Internet Display or any Statement of Work. 6.1. Time and Manner of Delivery Consultant shall deliver each Deliverable at the times and in the manner specified therefore under this Agreement, including any relevant Statement of Work. -3- 6.2. Procedure for Acceptance The procedure for acceptance of any Deliverable shall be as follows: (1) Client shall have thirty (30) days to inspect and test each such Deliverable when received to determine if it conforms to the Specifications. (2) If any Deliverables fails to conform to its Specifications, Client shall give Consultants written notice of the failure stating the defect in the Deliverables. Consultant shall then have thirty (30) days to remedy such failure and redeliver such Deliverable to Client. After resubmission, Client shall again inspect the Deliverable to confirm that it conforms to the Specifications. If the resubmitted Deliverable again fails Client's acceptance testing, Client may, in its sole discretion accept the Deliverable as a non-conforming Deliverable. If Client elects to accept the Deliverable as a non-conforming Deliverable, Client may in its sole discretion either: (i) withhold a mutually agreed upon offset from the development fees payable to Consultants for the Deliverable or (ii) invoice and recover from Consultants the amount of Client's reasonable out-of-pocket costs to correct, modify, and/or complete the Deliverable in accordance with the Specifications. (3) Each Deliverable shall be deemed to be accepted unless notice is provided by Client in accord with Section 6.2 (2). (4) Except in instances of Force Majeure or in the case of an extension pursuant to Sections 5.4 or 6.2 herein, a failure by Consultant to provide Deliverables to Client within the agreed upon time period shall be a breach under this Agreement. 7. Confidentiality 7.1. Confidential Information "Confidential Information" shall mean any information relating to or disclosed in the course of the Agreement, which is marked as "confidential" or "proprietary" by the disclosing party. Confidential Information shall not include any information, which is or becomes generally available to the public without breach of this Agreement; is in the possession of a party prior to its disclosure by the other party; or becomes available from a third party not in breach of any obligations of confidentiality to the disclosing party. 7.2. Prohibition on Disclosure Each party acknowledges that it will receive Confidential Information of the other party relating to its technical, marketing, product and/or business affairs. All Confidential Information of the other party shall be held in strict confidence and shall not be disclosed or used without express written consent of the other party, except as may be required by law. Each party shall use reasonable measures and reasonable efforts to provide protection for Confidential Information, including measures at least as strict as those, such party uses to protect its own Confidential Information. 7.3. Confidentiality of User Information Without limitation of the foregoing, Consultants acknowledge and agree that the User Information shall be deemed to be Confidential Information of the Client, and that Consultant not use User Information for any purpose other than that of fulfilling Consultants' obligations under this Agreement. Neither Consultants nor any third party on behalf of Consultants, shall have the right, directly or indirectly, to use, exploit, disclose, transmit, sell, assign, lease or otherwise convey or make available for access by third parties, any User Information. -4- 7.4. Confidentiality of Agreement Except as required by applicable securities laws, neither Client nor Consultants shall make any announcement or other disclosure to any third party of the transactions contemplated by this Agreement without the prior approval of the other party. All requests by Consultants to Client in this regard shall be directed to the attention of Chief Executive Officer of Client. 8. No Employment During the term of this Agreement, Client shall not solicit for employment any agent acting on behalf of Consultants without Consultants prior written consent. 9. Development Credit Client shall acknowledge Consultants as the site developers of the Site in text in an "acknowledgments page" of the Internet Display. 10. Intellectual Property 10.1. Ownership and Licensing of Consultants Materials All techniques, algorithms and methods or rights thereto owned by Consultants at the time this Agreement is executed and employed by Consultants in connection with the Site Related Programs (the "Consultants Materials") shall be and remain the property of Consultants unless they are in the public domain. Consultants grant to Client a perpetual, irrevocable, royalty free, unrestricted right to use, modify, transfer and maintain Consultants Materials. 10.2. Ownership of Program Codes Unless otherwise specified in a Statement of Work, and except for the Consultants Materials, all Deliverables and other materials, products, modifications developed or prepared for Client by Consultants under this Agreement (including any Statement of Work) including without limitation program images and text viewable on the Internet, any HTML OR EQUIVALENT Code relating thereto, or any program code created at the request of Client, is the property of Client and all title and interest therein shall vest in Client and shall be deemed to be a "work made for hire" and made in the course of the services rendered hereunder. To the extent that title to any such works may not, by operation of law, vest in Client or such works may not be considered works made for hire, all right, title and interest therein are hereby irrevocably assigned to Client. All such materials shall belong exclusively to Client with Client having the right to obtain and to hold in its own name, copyrights, registrations or such other protection as may be appropriate to the subject matter, and any extensions and renewals thereof. Consultant agrees to give Client and any person designated by Client, any reasonable assistance required to perfect the rights defined in this Section. 10.3. Site Related Programs Client and Consultants recognize that Site Related Programs may contain code created during the development of such Site Related Program. Notwithstanding any other provisions of this Agreement, Consultants shall retain a royalty-free license to utilize any other code developed by it hereunder. -5- 10.4. Property of Client Nothing herein shall be construed to grant any right or license to Consultants in or to any Content or other material provided to Consultants hereunder by Client, other than the right to use such material solely on behalf of Client in accordance with the terms hereto. All of the foregoing materials, including without limitation any and all copyrights, trademarks or trade names, are and shall remain the property of Client. 11. Warranties 11.1. Consultants Warranties Consultants represent and warrant that: (a) all of the services to be performed hereunder will be rendered using sound, professional practices and in a competent and professional manner by knowledgeable, trained and qualified personnel; (b) the Deliverables will operate in conformance with the relevant terms of this Agreement, including without limitation, the Statements of Work; (c) Consultants are the owner of or otherwise have the right to use and distribute all materials and methodologies used in connection with providing the Deliverables; (d) Consultants will comply with all applicable federal, state and local laws in the performance of obligations hereunder; the Deliverables are and will be free of any software disabling devices or internal controls, including, without limitation, time bombs, viruses, or devices of similar nature; (f) the Deliverables (other than information or materials supplied by Client and reproduced accurately in the Deliverables) shall not infringe upon any third party copyright, patent, trade secret or other proprietary right; and (g) the Web and Database Server shall be maintained and kept up-to-date to utilize current developments in Internet-related technology within a reasonable time after such technology becomes generally commercially available. 11.2. Client Warranties Client represents and warrants that: (a) the use, as contemplated by this Agreement, of the material supplied by Client hereunder shall not infringe any copyright, trademark, trade secret or other third party proprietary right; and (b) there is no impediment to Client's performance of its obligations hereunder. 11.3. Removed 12. Indemnification -6- 12.1. Consultant Indemnification Consultants agree to indemnify and hold harmless Client, its directors, officers, employees and agents, and defend any action brought against same with respect to any claim, demand, cause of action, debt or liability, including reasonable attorneys' fees, to the extent that it is based upon a claim that: (i) if true, would constitute a breach of any of Consultants' representations, warranties, or agreements hereunder; (ii) arises out of the negligence or willful misconduct of Consultants; or (iii) any of the Consultants Materials, Deliverables or services to be provided by Consultants hereunder infringes or violates any patents, copyrights, trade secrets, licenses, or other property rights of any third party. 12.2. Client Indemnification Client agrees to indemnify and hold harmless Consultants and defend any action brought against same with respect to any claim, demand, cause of action, debt or liability, including reasonable attorneys' fees, to the extent that it is based upon a claim that: (i) if true, would constitute a breach of any of Client's representations, warranties, or agreements hereunder; (ii) arises out of the negligence or willful misconduct of Client; or (iii) any of the Content provided by Client hereunder and used by Consultants as contemplated in this Agreement infringes or violates any patents, copyrights, trade secrets, licenses, or other property rights of any third party. 12.3. Notice of Claim In claiming any indemnification hereunder, the indemnified party shall promptly provide the indemnifying party with written notice of any claim which the indemnified party believes falls within the scope of the foregoing paragraphs. The indemnified party may, at its own expense, assist in the defense if it so chooses, provided that the indemnifying party shall control such defense and all negotiations relative to the settlement of any such claim and further provided that any settlement intended to bind the indemnified party shall not be final without the indemnified party's written consent, which shall not be unreasonably withheld. 12.4. Survival of Indemnification Obligation Each party's indemnification obligations shall survive any termination of this Agreement. 13. Support for Defects and Warranties During the term of this Agreement, Consultants agree that at no extra cost to Client: (a) to the extent that any Deliverable or service provided by Consultants shall fail to fulfill any warranty therefore, Consultants shall, upon written notice by Client of such failure, use its best efforts to promptly remedy such failure; and (b) Consultants shall promptly deliver to Client all software containing bug fixes or error corrections to any software or other Deliverable provided hereunder to Client, including without limitation the Internet Display, the Catalog and Site Related program, at no additional cost to Client. In connection with such maintenance, Client shall provide Consultants with such information as Consultants reasonably requires in a reasonable time to allow Consultants to provide such maintenance. Consultants shall have no responsibility for the maintenance of any third party software or hardware, other than as provided for herein or pursuant to any agreement entered into by Consultants pursuant to the terms of this Agreement. 14. Limitation of Liability 14.1. Limit on Circumstances Except for the indemnification obligations set forth herein, neither party hereto will not be liable for lost profits, lost opportunities, or indirect, incidental or consequential damages under any circumstances. -7- 14.2. Limit on Amount Except for the indemnification obligations set forth herein, Consultants' liability to client for any and all other matters related to this agreement shall not exceed $25,000. Except for the indemnification obligations set forth herein, Client's liability to Consultant for any and all matters related to this agreement shall not exceed $25,000. Except for the specific performance of delivery of payment schedule as set forth in Schedule D. 14.3. Disclaimer Except as expressly provided for in this agreement, all warranties express or implied, including implied warranties of merchantability, fitness for a particular purpose and non-infringement, are disclaimed. 15. Compensation 15.1. Initial Display Date As used herein, "Initial Display Date" shall mean the date upon which Client's Internet Display can be accessed by users of the Internet in accordance with the terms and conditions of this Agreement. The "Catalog Display Date" shall mean the date upon which the Catalog may be accessed, and purchases may be made from the Catalog, by users of the Internet in accordance with the terms and conditions of this Agreement. 15.2. Initial Fee Client shall pay Consultants all fees associated with this Agreement in accordance with the amount and payment schedule as set forth in Schedule D, attached. 15.3. Non-Exclusivity of Agreement Nothing herein shall be construed to preclude Client from distributing mail-order catalogs, selling any merchandise (whether or not appearing in the Catalog), or selling products or services on any other World Wide Web Site. 16. Term This Agreement shall commence as of the Effective Date and shall continue until delivery and acceptance of site as noted in Section 13. 17. Termination 17.1. Consultants Termination Consultants may terminate this Agreement: (i) upon filing of any voluntary petition by the Client or upon the filing of any involuntary petition against the Client under the Bankruptcy Code that is not dismissed within thirty (30) days after filing, or upon any appointment of a receiver for all or any portion of Client's business or operations, or any assignment of all or substantially all the assets of Client for the benefit of creditors; or (ii) upon Client's material breach of this Agreement, if Client fails to cure such default within thirty (30) days after receipt of notice specifying the default in reasonable detail; or (iii) pursuant to the terms of Section 20.1. -8- 17.2. Client Termination Client may terminate this Agreement: (i) upon filing of any voluntary petition by Consultants or upon the filing of any involuntary petition against Consultants under the Bankruptcy Code that is not dismissed within thirty (30) days after filing, or upon any appointment of a receiver for all or any portion of Consultants' business or operations, or any assignment of all or substantially all the assets of Consultants for the benefit of creditors; (ii) upon Consultants' material breach of this Agreement, if Consultants fail to cure such default within thirty (30) days after receipt of notice specifying the default in reasonable detail; (iii) upon Client's written request to terminate the Site, which shall be given no less than thirty (30) days prior to the effective date of such termination; or (iv) pursuant to the terms of Section 20.1. 17.3. Rights after Termination In the event of a termination of this Agreement: (i) the provisions of Sections 7, 10, 11, 12, 14, 17, 18, 19, and 20 shall survive the termination of this Agreement; (ii) each party shall return all copies of Confidential Information and all other property belonging to and/or received from the other party. Consultant agrees that upon the termination of this Agreement for any reason, or at anytime during the Term as requested by Client, Consultants shall return (or, at Client's request, destroy) all records of User Information in the possession or control of Consultants; and (iii) except as otherwise stated herein, each party may pursue claims it has against the other for any breach of the terms of this Agreement. 18. Publicity Consultants agree that they will not, without the written consent of Client in each instance: (i) use in advertising, publicity or otherwise (including without limitation on the Internet) the name of Client, Client's domain name, any trademark, trade name, symbol or any abbreviation or contraction thereof owned by or referring to the Client; or (ii) represent, directly or indirectly, that any product or service offered by Consultants has been approved by or endorsed by Client. 19. Removed 20. General Provisions 20.1. Force Majeure Nether party shall be deemed in default of this Agreement to the extent that performance of its obligations or attempts to cure any breach are delayed or prevented by reason of any act of God, fire, natural disaster, accident, act of government, or any other cause beyond the control of such party (Force Majeure) provided that such party gives the other party written notice thereof promptly and, in any event, within fifteen (15) days of discovery thereof and uses its best efforts to cure the delay. In the event of such a Force Majeure, the time for performance or cure shall be extended for a period equal to the duration of the Force Majeure, provided however that if the Force Majeure continues for longer than six (6) months, the party not effected by the Force Majeure may terminate this Agreement without any liability upon written notice to the other party. 20.2. Partial Invalidity Should any provision of this Agreement be held to be void, invalid or inoperative, the remaining provisions of this Agreement shall not be affected and shall continue in effect and the invalid provision shall be deemed modified to the least degree necessary to remedy such invalidity. -9- 20.3. No Waiver The failure of either party to partially or fully exercise any right or the waiver by either party of any breach, shall not prevent a subsequent exercise of such right or be deemed a waiver of any subsequent breach of the same or any other term of this Agreement. 20.4. Independent Contractor Consultants are acting, in performance of this Agreement, as an independent contractor. Consultants shall provide under this Agreement the services of only those personnel who are employees of Consultants for federal tax purposes. Consultants shall be solely responsible for the payment of compensation of personnel assigned to perform services hereunder. Client shall not be responsible for payment of worker's compensation, disability benefits, and unemployment insurance or for withholding or paying employment related taxes for any Consultant employee, but such responsibility shall be solely that of Consultants. In the event that any federal, state or local government agency, any court or any other applicable entity determines that the personnel provided by Consultants or any permitted subcontractor or assignee of Consultants hereunder are employees of Client for any purpose, Consultants agrees to indemnify and hold Client harmless from all liabilities, costs and expenses (including, but not limited to, attorneys' fees) associated with such determination. Notwithstanding any other provision of this Agreement, Consultants may only assign or subcontract work to be performed hereunder with the express written consent of Client, and Consultants shall remain primarily liable for all obligations hereunder. Consultants shall be responsible for all payroll taxes. 20.5. Insurance Consultants shall purchase and keep in force at its own cost and expense all insurance coverages including: (a) Worker's Compensation and Employer's Liability Insurance; (b) Commercial General Liability Insurance, including Contractual Liability, completed operations, personal injury coverage, broad form property damage; (c) Errors and Omission Insurance; and (d) Umbrella coverage for (b) and (c) above. Each and every policy and certificate shall contain an endorsement stating that the insurance company will not, prior to the expiration or termination of this Agreement or any policy expiration date shown on the policy and certificate, terminate the policy or change any coverage therein without giving written notice to Client. This notice shall be provided by certified mail to Client and shall arrive at least fifteen (15) days prior to the termination or change. 20.6. Source Code Escrow Consultants agrees to timely turn over to Client any Source Code so developed in connection with the services performed or provided by Consultants or their agents under this Agreement. 20.7. Notices Any notice required or permitted to be sent shall be in writing and shall be sent in a manner requiring a signed receipt such as, Federal Express or like courier delivery, or if mailed, then mailed by registered or certified mail, return receipt requested. Notice is effective upon receipt. Notice shall be sent to addresses as set forth above. Place of notice to be given by each respective party may be changed by such party giving to the other written notice thereof as herein provided. -10- 20.8. Assignment Neither party shall assign any of its rights or obligations under this Agreement to any other entity without the other party's prior written consent. 20.9. Entire Agreement This Agreement, including the Schedules and Statements of Work thereto, sets forth the entire agreement between the parties on this subject and supersedes all prior negotiations, understandings and agreements between the parties concerning the subject matter. No amendment or modification of this Agreement shall be made except by a writing signed by both parties. 20.10. Governing Law This Agreement shall be governed and interpreted in accordance with the laws of the state of New York without regard to principles of conflict of laws. 20.11. Forum for Resolution of Controversy or Claim Any controversy or claim arising out of or relating to this agreement, or the breach thereof, shall be tried before the Supreme Court of the State of New York, New York County or the Southern District of the United States District Court as the case may be. All parties consent to the jurisdiction of either the New York County Supreme Court or Southern District of New York United States District Court. -11- IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. Brooklyn Cheesecake & Desserts Company, Inc. By: ---------------------------- Title: ------------------------- Burbro Capital, Inc. By: ---------------------------- Title: ------------------------- -12- Schedule A - Statement of Work Statement of Work Goal To be the best online distributor of cheesecakes. Vision The general vision of the site is an `order' friendly site with an emphasis on ease of use for order placement. The end goal, placing an order, should not be hindered by any extraneous information or graphics. As well, the site should be consistently "fresh and current"; therefore admin capabilities for updates on a regular basis should be made available. Look and Feel Presently, the BCC color scheme is black, charcoal and white. The company would like to stay within that color scheme as they feel that the graphic work and colors reflect more of an "attitude" rather than a "look". Commerce Development Order of Importance/Expectations for (by target market): 1. Individual Consumer 2. Corporate Gifting Capabilities 3. Food Service Consumers 4. Fundraising Functional Expectations: t 6 12 o Will feature a "cake of the month" promotion with ability to discount if necessary o Want to be able promote up sells (i.e. Customers who purchased x also liked z) o Ability to track frequent shoppers/buyer tally's for return customers o Ability to discount/offer promotions o Special messages (gifting) o Shipping (information/contracting Pending) o Ability to provide downloadable "catalog (PDF) Individual Consumer product category hierarchy The initial launch of the site should target and be capable of supporting the purchases of the individual consumer. Overall Category- Cakes o 10" o 8" o Mini's o Cake line o Blackout Cake o Brooklyn Apple Cake o Sugar Free -13- Collateral/Content: o Product Photos o Logo o Product Descriptions o Order information/Black-out dates Marketing site development needs: o Investor Relations- necessary for SEC compliance should include links to EDGAR and other sites that provide "real-time" stock information. o About Us o Board of Directors o Product Information/Tips o FAQ's o Customer Service/Contact Us Future Corporate Gifting This idea needs further development. One of the general ideas and "wishes" for this system is that it be able to support an automated recurring order process that reminds and prompts corporate clients of gifting options and rewards them for their purchases. Food Service Food Service consumers include distributors and restaurants. Although the needs and final marketing ideas for reaching this target need further development some of the general ideas include the ability to provide product tips (i.e. decorating, keeping it fresh, etc...) as well as providing supportive marketing materials that can be used to promote sales within the venue. Fundraiser Want to provide downloadable brochures and order forms. Marketing & Maintenance .* The parties are to negotiate in good faith a contract to provide marketing and on going maintenance.* The below is not included in contract.* We offer our expertise in creating and implementing results driven media advertising campaigns utilizing traditional and online media planning with the goal of strategically building the Brooklyn Cheesecake brand. This vision is realized through a team approach and a host of capabilities including: o Advertising Planning o Strategic Media Planning o Media and Market Research o Media Buying Clout o Creative Development o Production * Hand written on original contract***** -14- The customized execution may include use of the following: o Promotions o Direct Mail o Radio Campaigns o Print Advertising o National Cable TV advertising o Online Advertising to proactively drive traffic through the use of major search engine promotional programs o E-mail campaigns Results will be tracked and analyzed on a regular basis through: o Vanity Number/Toll Free Reports o Call Center Management/Order Entry Reports o Web Campaign Summaries including Page Statistics A monthly marketing and advertising budget will be determined by Brooklyn Cheesecake and agreed upon after a detailed media plan has been approved. -15- Schedule B Timetable and Additional Services >> March 1, 2005: Project commences - Project Manager (Paulette Robinson) meets with client to secure digital assets, product detail, and copy. >> March 4, 2005 - Merchant account detail provided by client. >> March 8, 2005 - First prototype delivered with products, look and feel intact for discussion and review. >> March 10, 2005 - initial training on program usage for fulfillment is done on client premises. >> March 15, 2005 - Merchant processing gateway integration completed. >> March 18, 2005 - final prototype delivered. >> March 21, 2005 - one week of test ordering, friends and family. >> March 28, 2005 - website open for public business. >> April 30, 2005 - Corporate gifting site. >> May 31, 2005 - Food service and fundraising site. -16- Schedule C - Software Application and Database Features *General Functionality * o Built with PHP 4 o Multilingual support with English supplied *Administration / Backend Functionality * o Supports unlimited products and categories o Products-to-categories structure o Categories-to-categories structure o Add/Edit/Remove categories, products, manufacturers, customers, and reviews o Administration area secured with a username and password o Contact customers directly via email or newsletters o Easily backup and restore the database o Print invoices and packaging lists from the order screen o Statistics for products and customers o Multilingual support o Multicurrency support o Automatically update currency exchange rates o Select what to display, and in what order, in the product listing page o Support for static and dynamic banners with full statistics *Customer / Frontend Functionality * o All orders stored in the database for fast and efficient retrieval o Customers can view their order history and order statuses o Customers can maintain their accounts o Address book for multiple shipping and billing addresses o Temporary shopping cart for guests and permanent shopping cart for customers o Fast and friendly quick search and advanced search features o Product reviews for an interactive shopping experience o Forseen checkout procedure o Secure transactions with SSL o Number of products in each category can be shown or hidden o Global and per-category bestseller lists o Display what other customers have ordered with the current product shown o Breadcrumb trail for easy site navigation *Product Functionality * o Dynamic product attributes relationship o HTML OR EQUIVALENT based product descriptions o Automated display of specials o Control if out of stock products can still be shown and are available for purchase o Customers can subscribe to products to receive related emails/newsletters -17- *Payment Functionality * o Accept numerous offline payment processing (check, money orders, offline credit card processing,..) o Accept numerous online payment processing (2CheckOut, PayPal, o Authorize.net, iPayment,..) - Client must obtain a Merchant Account Disable certain payment services based on a zone basis *Shipping Functionality * o Weight, price, and destination based shipping modules o Real-time quotes available (UPS, USPS, FedEx,..) o Free shipping based on amount and destination o Disable certain shipping services based on a zone basis *Tax Functionality * o Flexible tax implementation on a state and country basis o Set different tax rates for different products o Charge tax on shipping on a per shipping service basis -18- Schedule D - Compensation 1. 350,000 shares* of Brooklyn Cheesecake & Desserts Company Common Stock issuable to James Burchetta upon commencement of work as set forth on Schedule A. 2. 350,000 shares* of Brooklyn Cheesecake & Desserts Company Common Stock issuable to Charles Brofman upon commencement of work as set forth on Schedule A. 3. 350,000 shares* of Brooklyn Cheesecake & Desserts Company Common Stock issuable to Richard Rosa upon commencement of work as set forth on Schedule A. 4. 350,000 shares* of Brooklyn Cheesecake & Desserts Company Common Stock issuable to James Burchetta upon the completion and launching of the Site for commercial activity in accord with the terms of this Agreement which this Schedule E is a part thereof. 5. 350,000 shares* of Brooklyn Cheesecake & Desserts Company Common Stock issuable to Charles Brofman upon the completion and launching of the Site for commercial activity in accord with the terms of this Agreement which this Schedule E is a part thereof. 6. 350,000 shares* of Brooklyn Cheesecake & Desserts Company Common Stock issuable to Richard Rosa upon the completion and launching of the Site for commercial activity in accord with the terms of this Agreement which this Schedule E is a part thereof. 7. 400,000 shares* of Brooklyn Cheesecake & Desserts Company Common Stock issuable to others upon the completion and launching of the Site for commercial activity in accord with the terms of this Agreement which this Schedule E is a part thereof. ----------- o Shares of Common Stock to be subject to separate voting rights agreement by and between the Company and Burchetta and Brofman providing the Chairman of Brooklyn Cheesecake & Desserts authority to vote the shares until such time as the shares are sold or transferred under applicable securities law to a non affiliate of Consultant or Consultants. -19- EX-10.37 10 v016391_ex10-37.txt Exhibit 10.37 WARRANT EXCHANGE and RELEASE AGREEMENT AGREEMENT made as of the 9th day of December 2004 by and among the BAILEY FAMILY TRUST, having an address at [ ] (hereinafter referred to as "BAILEY"), FORTUNA INVESTMENT PARTNERS with an address at [ ] (hereinafter referred to as ("FORTUNA"), FORTUNA UNPLUGGED with an address at [ ](hereinafter referred to as "UNPLUGGED") (collectively referred to as the "WARRANT HOLDERS") and CREATIVE BAKERIES, INC. having its principal place of business at 20 Passaic Avenue, Fairfield New Jersey 07004 (hereinafter referred to as "CBAK"). W I T N E S S E T H: WHEREAS, the WARRANT HOLDERS hold [ ] warrants collectively that contain a put provision to CBAK; WHEREAS, the warrants held by WARRANT HOLDERS are due to expire December 31, 2004; WHEREAS, the WARRANT HOLDERS are desirous of exchanging their warrants for shares of CBAK common stock; WHEREAS, the WARRANT HOLDERS further wish to release CBAK, it officers, directors and all those acting on behalf of CBAK from any and all claims or obligations associated with the warrants exchanged; WHEREAS, CBAK is agreeable to exchanging shares of CBAK common stock for warrants owned by the WARRANT HOLDERS; and WHEREAS, the parties are desirous of defining their rights and responsibilities with respect to the transaction. NOW THEREFORE, IN CONSIDERATION OF THE MUTUAL REPRESENTATIONS, COVENANTS AND AGREEMENTS HEREIN SET FORTH, THE PARTIES HERETO AGREE AS FOLLOWS: FIRST: BAILEY owns [ ] warrants of CBAK, a copy of the warrant is annexed hereto as Exhibit A, FORTUNA owns [ ] warrants of CBAK, a copy of the warrant is annexed hereto as Exhibit B, and UNPLUGGED owns [ ] warrants of CBAK, a copy of the warrant is annexed hereto as Exhibit C which represents all of the issued and outstanding warrants subject to this Agreement (collectively the "WARRANTS"). SECOND: Upon execution of the within Agreement, BAILEY will exchange the [ ] warrants held by it for 640,041 shares of CBAK common stock. THIRD: Upon execution of the within Agreement, FORTUNA will exchange the [ ] warrants held by it for 475,081 shares of CBAK common stock. FOURTH: Upon execution of the within Agreement, UNPLUGGED will exchange the [ ] warrants held by it for 105,574 shares of CBAK common stock. FIFTH: The WARRANT HOLDERS represent and warrant to CBAK that the WARRANTS are free and clear of any liens or encumbrances and that there is no restriction on the WARRANT HOLDERS with respect to the exchange of the WARRANTS for shares of Common Stock in CBAK. SIXTH: The parties acknowledge and recognize that the business operations and current financial statements of CBAK have been fully disclosed, and all matters with respect to the business of CBAK have been fully disclosed to all of the parties herein. SEVENTH: As additional consideration for the exchange of WARRANTS for shares of CBAK common stock, BAILEY hereby releases CBAK its directors, officers and all those acting on its behalf from and claims associated with the warrant exchanged and hereby relinquishes any and all rights or claims associated with the warrants exchanged for common stock under this Agreement. EIGHTH: As additional consideration for the exchange of WARRANTS for shares of CBAK common stock, FORTUNA hereby releases CBAK its directors, officers and all those acting on its behalf from and claims associated with the warrant exchanged and hereby relinquishes any and all rights or claims associated with the warrants exchanged for common stock under this Agreement. NINTH: As additional consideration for the exchange of WARRANTS for shares of CBAK common stock, UNPLUGGED hereby releases CBAK its directors, officers and all those acting on its behalf from and claims associated with the warrant exchanged and hereby relinquishes any and all rights or claims associated with the warrants exchanged for common stock under this Agreement. TENTH: Each party further acknowledges that it has had the opportunity to be represented by independent counsel concerning their respective rights and obligations under the within Agreement and has specifically requested Baratta & Goldstein as counsel to CBAK to serve as escrow agent in connection with the exchange of WARRANTS for common stock under the within Agreement. 2 ELEVENTH: The parties further agree that the WARRANTS, the common stock of CBAK to be issued to the WARRANT HOLDERS as set forth herein and fully executed Agreements are to be returned to the ESCROW AGENT in care of Baratta & Goldstein, Attn: Joseph A. Baratta, 597 Fifth Avenue, New York, NY 10017 (telephone 212-750-9700 and fax 212-750-8297]by overnight currier or hand delivery and that the common stock to be issued in exchange for the WARRANTS will be forwarded to the WARRANT HOLDERS at their respective addresses as set forth in the preamble of this Agreement unless the ESCROW AGENT is otherwise advised in writing by a party. TWELFTH: The parties understand and agree that in the event any additional or further documents are required with respect to the within exchange of WARRANTS, that each party agrees to provide same within a reasonable time of a request of any such documents. THIRTEENTH: It is further understood and agreed that the parties have agreed that the exchange of WARRANTS for stock herein will be deemed effective upon execution of the within Agreement by all parties. FOURTEENTH: Except as set forth in paragraph ELEVENTH regarding the procedure for exchange of WARRANTS and shares of common stock, all notices and other communications hereunder shall be in writing and shall be deemed to have been validly served, given or delivered five (5) days after deposit in the United States mails, by certified mail, return receipt requested, and postage prepaid, when delivered personally, one (1) day after delivery to any overnight courier, or when transmitted by facsimile transmission facilities, and addressed to the parties as set forth in the preamble of this agreement or to such other address as each party may designate for itself by like notice. FIFTEENTH: The within Agreement is governed by the laws of the State of New York and cannot be changed, altered or modified, except in writing signed by the parties. No delay or omission by any party in exercising any right with respect hereto shall operate as a waiver. A waiver on any one occasion shall not be construed as a bar to, or waiver of, any right or remedy on any future occasion. [The Remainder of this Page Intentionally Left Blank] 3 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal as of the date first above written. CREATIVE BAKERIES, INC. By: -------------------------------------- BAILEY FAMILY TRUST By: -------------------------------------- FORTUNA INVESTMENT PARTNERS By: -------------------------------------- FORTUNA UNPLUGGED By: -------------------------------------- Agreed to as to the Escrow Provisions Only: - ----------------------------- Baratta & Goldstein [Signature Page to Warrant Exchange and Release Agreement] 4 STATE OF , COUNTY OF SS.: I CERTIFY that on January ______ , 2005, ______________ an authorized signatory on behalf of Bailey Family Trust, personally came before me and stated to my satisfaction that this person (or if more than one, each person): (a) was authorized to execute the within Exchange Agreement and Release; (b) is the maker of the attached Exchange Agreement and Release; (c) executed this Exchange Agreement and Release as his or her own act; and (d) entered into this Exchange Agreement and Release for the full and actual consideration set forth herein Notary My commission expires: STATE OF , COUNTY OF SS.: I CERTIFY that on January ______ , 2005, ______________ an authorized signatory on behalf of Fortuna Investment Partners, personally came before me and stated to my satisfaction that this person (or if more than one, each person): (e) was authorized to execute the within Exchange Agreement and Release; (f) is the maker of the attached Exchange Agreement and Release; (g) executed this Exchange Agreement and Release as his or her own act; and (h) entered into this Exchange Agreement and Release for the full and actual consideration set forth herein Notary My commission expires: STATE OF , COUNTY OF SS.: I CERTIFY that on January ______ , 2005, ______________ an authorized signatory on behalf of Fortuna Unplugged, personally came before me and stated to my satisfaction that this person (or if more than one, each person): (i) was authorized to execute the within Exchange Agreement and Release; (j) is the maker of the attached Exchange Agreement and Release; (k) executed this Exchange Agreement and Release as his or her own act; and (l) entered into this Exchange Agreement and Release for the full and actual consideration set forth herein Notary My commission expires: 5 "ANNEX EXHIBIT A WARRANT" 6 "ANNEX EXHIBIT B WARRANT" 7 "ANNEX EXHIBIT C WARRANT" 8 EX-10.38 11 v016391_ex10-38.txt Exhibit 10.38 PROMISSORY NOTE Principal Amount: Effective as of: US$8,910.74 December 31, 2004 1. Amount; Interest Rate FOR VALUE RECEIVED, Brooklyn Cheesecake & Desserts Company, Inc., formerly known as Creative Bakeries, Inc., a corporation organized and existing under the laws of New York and authorized to do business in New Jersey, with offices at 20 Passaic Avenue, Fairfield, New Jersey 07004 and its wholly owned subsidiary, J.M. Specialties, Inc., A New Jersey Corporation, a corporation organized and existing under the laws of New Jersey, with offices at 20 Passaic Avenue, Fairfield, New Jersey 07004 (the "Co-Obligor[s]"), promise to pay to the order of Anthony J. Merante, residing at 46 Davenport Road, Yonkers, New York 10710 (the "Payee"), the principal sum of Eight Thousand Nine Hundred Ten and 74/100 United States Dollars (US$8,910.74)(the "original principal balance"), and interest on the outstanding principal balance from the date hereof at the rate of eight and one half percent (8.5%) per annum (the "annual interest rate"). The Co-Obligors are and shall remain jointly and severally liable to Payee for all amounts due the Payee pursuant to this note. 2. Payment Schedule (a) For purposes of calculating monthly installments to be paid, the following definitions shall apply: (i) "Interest rate factor" shall mean the product obtained by first dividing the annual interest rate by three hundred sixty (360) days, and then multiplying the resulting quotient by the actual number of days in the month for which the monthly installment applies. (ii)"Outstanding principal balance" shall mean the original principal balance first increased by the cumulative total of all additions to the original principal balance made pursuant to Sections 4 and 5 of this note and then decreased by the cumulative total of all principal payments previously paid by any Co-Obligor to the Payee at the time a monthly installment is due. Page 1 (iii) "Interest payment" shall mean the product obtained by multiplying the interest rate factor by the outstanding principal balance at the time a monthly installment is due. (iv) "Principal payment" shall mean the quotient obtained by dividing the outstanding principal balance as of July 1, 2005 by twelve (12). (b) This note shall be payable in twelve (12) monthly installments as follows: (i) For each of the first six (6) monthly installments, each monthly installment shall consist solely of an interest payment and shall be payable commencing on the last day of January 2005 and thereafter shall continue to be payable on the last day of each month up until and including the last day of June 2005; and (ii)For each of the remaining six (6) monthly installments, each monthly installment shall consist of an interest payment and principal payment and shall be payable commencing on the last day of July 2004 and thereafter shall continue to be payable on the last day of each month up until and including the last day of December 2005. (c) All payments, including insufficient payments, shall be applied, regardless of their designation by Co-Obligors, as the Payee shall determine at his sole discretion. 3. Default If any of the following events shall occur, the outstanding principal balance of this note together with accrued interest thereon shall, on demand by the Payee of this note, be due and payable: any amount owing under this note or any other note is not paid when due; a default under any other provision of this note or any other note or under any guarantee or other agreement providing security for the Page 2 payment of this note or any other note; a breach of any representation or warranty under this note or any other note or under any guarantee or agreement providing security for payment of this note or any other note; the liquidation, dissolution, death, or incompetency of any Co-Obligor or any individual, corporation, partnership, or other entity guaranteeing or providing security for the payment of this note or any other note; a sale of a material or substantial portion of the business and assets of any Co-Obligor or any corporation, partnership, or other entity guaranteeing or providing security for the payment of this note or any other note; a merger, consolidation, or acquisition of any Co-Obligor or any corporation, partnership, or other entity guaranteeing or providing security for the payment of this note or any other note; a change in ownership of any Co-Obligor or any corporation, partnership, or other entity guaranteeing or providing security for the payment of this note or any other note wherein 50% ownership of all classes of shares or interests of any Co-Obligor or any corporation, partnership, or other entity guaranteeing or providing security for the payment of this note or any other note is held by any group of business entities or individuals, which in combination with each other number six (6) or fewer; a change in control of any Co-Obligor or any corporation, partnership, or other entity guaranteeing or providing security for the payment of this note or any other note wherein 50% control of the voting rights of all classes of shares or interests of any Co-Obligor or any corporation, partnership, or other entity guaranteeing or providing security for the payment of this note or any other note is held by any group of business entities or individuals, which in combination with each other number six (6) or fewer; a change in the membership of the Board of Directors, partners, or members of any Co-Obligor or any corporation, partnership, or other entity guaranteeing or providing security for the payment of this note or any other note wherein any current Board Members duly serving on the Board of Directors, partners, or members as of the date of this Agreement no longer comprise more than two thirds (?) of the entire Board of Directors(exclusive of any New Board Member or Board Members added to the Board of Directors who were appointed, nominated, or elected through the efforts of the Payee), partnership, or membership of any Co-Obligor or any corporation, partnership, or other entity guaranteeing or providing security for the payment of this note or any other note; Page 3 the filing of a petition under any bankruptcy, insolvency, or similar law by any Co-Obligor or by any individual, corporation, partnership, or other entity guaranteeing or providing security for the payment of this note or any other note; the making of any assignment for the benefit of creditors by any Co-Obligor or by any individual, corporation, partnership, or other entity guaranteeing or providing security for the payment of this note or any other note; the filing of a petition under any bankruptcy, insolvency, or similar law against any Co-Obligor or against any individual, corporation, partnership, or other entity guaranteeing or providing security for the payment of this note and any other note and such petition not being dismissed within a period of thirty (30) days of the filing; the termination or discontinuance of employment, for any reason whatsoever, between the Payee of this note or any other note and any Co-Obligor. 4. Default Interest The outstanding balance of any amount owing under this note that is not paid when due shall bear interest at the rate of twelve and a half percent (12.5%) per annum. Any default interest under this section and any amount owing under this note that is not paid when due shall be due and owing immediately by the Co-Obligors and shall accrue default interest until such time that they are satisfied in full by Co-Obligors. 5. Payment in Cash or Kind Up until the last day of June 2005, the Co-Obligors shall have the option to pay interest to the Payee in cash or in kind. In the event that the Co-Obligors choose to pay in cash, such payment shall be made pursuant to Section 7 of this note. In the event the Co-Obligors choose to pay interest in kind, the amount of such interest accrued shall be added to the original principal balance, which shall then be paid to the Payee in equal installments with accrued interest from July 31, 2005 over the remainder of the term of this note as set forth in Section 2(b)(ii) of this note. 6. Usury Clause Notwithstanding any other provision of this note, interest under this note shall not exceed the maximum rate permitted by law; and if any amount is paid under this note as interest in excess of such maximum rate, then the amount so paid will not constitute interest but will constitute a prepayment on account of the principal amount of this note. If at any time the interest rate under this note would, but for the provision of the preceding sentence, exceed the maximum rate permitted by law, then the outstanding principal balance of this note shall, on demand by the Payee of this note, become and be due and payable. Page 4 7. Where to Make Payments All payments of principal and cash interest shall be made in lawful currency of the United States of America by certified check made payable to Anthony J. Merante and delivered before 11:00 a.m. Eastern Standard or Eastern Daylight time (whichever is then in effect) on the due date thereof at 46 Davenport Road, Yonkers, New York 10710, or in such other manner or at such other place as the Payee of this note designates in writing. 8. No Set-off and Tax Gross All payments under this note shall be made Up without defense, set-off or counterclaim, free and clear of and without deduction for any reason and for taxes of any nature now or hereafter imposed. Should any such payment be subject to any tax, the Co-Obligors shall pay to the Payee of this note such additional amounts as may be necessary to enable the Payee to receive a net amount equal to the full amount payable hereunder. As used in this paragraph, the term "tax" means any tax, levy, impost, duty, charge, fee, deduction, withholding, turnover tax, stamp tax and any restriction or condition resulting in a charge imposed in any jurisdiction upon the payment or receipt of any amount under this note. 9. Expenses The Co-Obligors agree to pay on demand (i) all expenses (including, without limitation, legal fees and disbursements) incurred in connection with the negotiation and preparation of this note and any documents in connection with this note, and (ii) all expenses of collecting and enforcing this note and any guarantee or collateral securing this note, including, without limitation, expenses, and fees of legal counsel, court costs, and the cost of appellate proceedings. Page 5 10. Governing Law This note and the obligations of the Co-Obligors shall be governed by and construed in accordance with the laws of the State of New York, except that no choice of law doctrine shall be used to apply the laws of another jurisdiction. For purposes of any proceeding involving this note or any of the obligations of any Co-Obligor, the Co-Obligors hereby submit to the non-exclusive jurisdiction of the courts of the State of New York and of the United States having jurisdiction in the County of New York, State of New York, and agrees not to raise and waive any objection to or defense based upon the venue of any such court and any objection or defense based upon forum non conveniens. The Co-Obligors agree not to bring any action or other proceeding with respect to this note or with respect to any of its obligations in any other court unless such courts of the State of New York and of the United States determine that they do not have jurisdiction in the matter. 11. Waiver of Presentment, The Co-Obligors waive presentment for payment, Etc. demand, protest and notice of protest and of non-payment. 12. Delay; Waiver The failure or delay by the Payee of this note in exercising any of its rights hereunder in any instance shall not constitute a waiver thereof in that or any other instance. The Payee of this note may not waive any of its rights except by an instrument in writing signed by the Payee. 13. Prepayment The Co-Obligors may prepay all or any portion of the principal of this note at any time and from time to time without premium or penalty. Any such prepayment shall be applied against the installments of principal due under this note in the inverse order of their maturity and shall be accompanied by payment of accrued interest on the amount prepaid to the date of prepayment. 14. Rights and Remedies The rights and remedies provided in this note are cumulative and not exclusive of any rights or remedies provided by law or by any other agreement. The Payee will not be required to resort to or pursue any of its rights or remedies under or with respect to any other note, agreement, or with respect to any other collateral, guarantee, or other security before pursuing any of its rights or remedies under this note. The Payee may pursue its rights and remedies in such order as it determines. 15. Amendment This note may not be amended without the written approval of the Payee. 16. Section Headings Section headings are for purposes of convenience only and shall have no bearing on the interpretation of any provision in this note. Page 6 17. Severability If any provision of this note or the application of any such provision to any person or circumstance is held invalid, the remainder of this note, and the application of such provision other than to the extent it is held invalid, shall not be invalidated or affected thereby. 18. Entire Note This note constitutes the entire note and supersedes any and all prior agreements or understandings, whether written or oral. There are no restrictions, promises, representations, warranties, covenants, or undertakings, other than those expressly set forth or referred to herein. 19. Pronouns All pronouns and any variation thereof shall be deemed to refer to the masculine, feminine, or neuter, singular or plural, as the identity of the person or persons may require. 20. Rules of Construction Each of the parties hereto has reviewed this note and agrees that the normal rule of construction that any ambiguity or uncertainty in a writing be interpreted against the party drafting the writing shall not apply in any action or proceeding involving this note. 21. Successors This note shall be binding upon and inure to the benefit of permitted successors and assigns, heirs, executors, and administrators of the respective parties. Neither the Co-Obligors nor the Payee may, without the other's prior written consent, transfer or assign any rights or obligations under this note. 22. Acknowledgment The parties hereto acknowledge that they have read and understand this note and agree to be bound by its terms and conditions. 23. Execution This note may be executed in counterparts, and as so executed shall constitute one note binding on the parties. NO FURTHER TEXT ON THIS PAGE SIGNATURE PAGE FOLLOWS Page 7 CO-OBLIGOR Brooklyn Cheesecake & Desserts Company, Inc., formerly known as Creative Bakeries, Inc. By: ------------------------- Name: Ronald L. Schutte Title: Chief Executive Officer CO-OBLIGOR J.M. Specialties, Inc., A New Jersey Corporation By: ------------------------- Name: Ronald L. Schutte Title: President Page 8 EX-31.1 12 v016391_ex31-1.txt Exhibit 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER CERTIFICATION PURSUANT TO THE SARBANES-OXLEY ACT OF 2002 I, Ron Schutte, certify that: 1. I have reviewed this annual report on Form 10-KSB of Creative Bakeries, Inc; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 15, 2005 /s/ Ron Schutte - -------------------- Ron Schutte Chairman and Chief Executive Officer EX-31.2 13 v016391_ex31-2.txt Exhibit 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER CERTIFICATION PURSUANT TO THE SARBANES-OXLEY ACT OF 2002 I, Anthony J. Merante, certify that: 1. I have reviewed this annual report on Form 10-KSB of Creative Bakeries, Inc; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 15, 2005 /s/ Anthony J. Merante - --------------------------- Anthony J. Merante Vice-President and Chief Financial Officer EX-32.1 14 v016391_ex32-1.txt Exhibit 32.1 SECTION 1350 CERTIFICATION CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Brooklyn Cheesecake & Desserts Company, Inc. (the "Company") on form 10-KSB for the period ended December 31, 2004, as filed with the Securities and Exchange Commission on or about the date hereof, I Ronald Schutte President and Chief Executive Officer of the Company certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge, that (i) the Report fully complies with the requirements of Section 13(a) and Section 15(d) of the Securities Exchange Act of 1934, as amended; and (ii) the information contained in the Report fairly present, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. Date: April 15, 2005 /s/ Ronald Schutte ------------------------------------- Ronald Schutte President and Chief Executive Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Brooklyn Cheesecake & Desserts Company, Inc. and will be retained by and furnished to the Securities and Exchange Commissions or its staff upon request. EX-32.2 15 v016391_ex32-2.txt Exhibit 32.2 SECTION 1350 CERTIFICATION CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Brooklyn Cheesecake & Desserts Company, Inc. (the "Company") on form 10-KSB for the period ended December 31, 2004, as filed with the Securities and Exchange Commission on or about the date hereof, I Anthony J. Merante Vice-President and Chief Financial Officer of the Company certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge, that (iii) the Report fully complies with the requirements of Section 13(a) and Section 15(d) of the Securities Exchange Act of 1934, as amended; and (iv) the information contained in the Report fairly present, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. Date: April 15, 2005 /s/ Anthony J. Merante ------------------------------------- Anthony J. Merante Vice-President and Chief Financial Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Brooklyn Cheesecake & Desserts Company, Inc. and will be retained by and furnished to the Securities and Exchange Commissions or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----