10QSB 1 0001.txt CREATIVE BAKERIES, INC. 10-QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2000 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1939 For the transition period from _______________ to _____________ Commission File Number: 1-13984 CREATIVE BAKERIES, INC. (Exact name of small business issuer as specified in its charter) New York 22-3576940 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 20 Passaic Avenue, Fairfield, NJ 07004 (Address of principal executive offices) Issuer's telephone number, including area code: (973) 808-9292 Former name: William Greenberg Jr. Desserts and Cafes, Inc. CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO Indicate the number of Shares outstanding of each of the Issuer's classes of common stock, as of the latest practicable date.

Class Outstanding at September 30, 2000 ------------------------------ --------------------------------- Common Stock, par value $0.001 per share 5,245,250

INDEX Part I. Financial information Item 1. Condensed consolidated financial statements: Balance sheet as of September 30, 2000 F-2 Statement of operations for the nine and three months ended September 30, 2000 and 1999 F-3 Statement of stockholders' equity for the period January 1, 1999 to September 30, 2000 F-4 Statement of cash flows for the nine months ended September 30, 2000 and 1999 F-5 Notes to condensed consolidated financial statements F-6 - F-12 Item 2. Management's discussion and analysis of financial condition Part II. Other information Signatures CREATIVE BAKERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET - SEPTEMBER 30, 2000 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 19,866 Accounts receivable, less allowance for doubtful accounts of $15,000 316,874 Inventories 302,670 Prepaid expenses and other current assets 21,522 ------------ Total current assets 660,932 ------------ Property and equipment, net 521,706 ------------ Other assets: Goodwill, net of amortization 829,257 Security deposits 5,464 ------------ 834,721 ------------ $ 2,017,359 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable, bank $ 120,649 Loans payable, other 7,500 Accounts payable 542,600 Payroll taxes payable 45,750 Accrued expenses 187,018 ------------ Total current liabilities 903,517 ------------ Other liabilities: Deferred rent 121,503 Net liabilities of discontinued operations less assets to be disposed of 391,166 ------------ 512,669 ------------ Stockholders' equity: Preferred stock, $.001 par value, authorized 2,000,000 shares; none issued Common stock, $.001 par value, authorized 10,000,000 shares, issued 5,245,250 shares 5,245 Additional paid in capital 11,364,074 Deficit (10,649,117) ------------ 720,202 Common stock held in treasury, 208,500 shares (119,029) ----------- 601,173 ------------ $ 2,017,359 ============ See notes to condensed consolidated financial statements. F-2 CREATIVE BAKERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Unaudited)

Nine Months Three Months Ended September 30, Ended September 30, 2000 1999 2000 1999 ---- ---- ---- ---- Net sales $3,063,675 $3,235,709 $ 954,948 $1,199,457 Cost of sales 2,541,486 2,655,469 861,142 1,044,269 ---------- ---------- ---------- ---------- Gross profit 522,189 580,240 93,806 155,188 Selling, general and administrative expenses 795,758 671,041 272,463 141,199 ---------- ---------- ---------- ---------- Loss before other income (expenses) and discontinued operations (273,569) (90,801) (178,657) 13,989 ---------- ---------- ---------- ---------- Other income (expenses): Sale of marketable securities 3,216 Gain on sale of equipment 5,750 5,750 Miscellaneous income 6,791 47,976 2,291 5,631 Interest income 3,619 6,219 738 1,971 Interest expense (8,025) (12,505) (1,039) (6,876) ---------- ---------- ---------- ---------- 8,135 44,906 7,740 726 ---------- ---------- ---------- ---------- Income (loss) from continuing operations (265,434) (45,895) (170,917) 14,715 Discontinued operations: Income (loss) from operations of New York facility to be disposed of (20,062) (3,974) 4,403 (27,789) ---------- ---------- ---------- ---------- Net loss $ (285,496) $ (49,869) $ (166,514) $ (13,074) ========== ========== ========== ========== Earnings per common share: Basic and fully diluted: Income (loss) from continuing operations $ (0.05) $ (0.01) $ (0.03) $ (0.00) Income (loss) from discontinued operations (0.00) (0.00) 0.00 (0.00) ----------- ---------- ---------- ---------- Net loss per common share $ (0.05) $ (0.01) $ (0.03) $ (0.00) =========== ========== =========== ========== Weighted average number of common shares outstanding 5,245,250 5,282,781 5,245,250 5,305,250 =========== ========== ========== ==========

See notes to condensed consolidated financial statements. F-3 CREATIVE BAKERIES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY JANUARY 1, 1999 TO SEPTEMBER 30, 2000

Common stock ------------------- Number Additional Total of Paid in Accumulated Treasury Stockholders' Shares Amount Capital Deficit Stock Equity ------- ------ ------- ------- ---- ------ C> Balance at January 1, 1999 5,101,750 $5,102 $11,206,588 ($10,482,200) ($247,369) $482,121 Exercise of warrants on January 26, 1999 150,000 150 187,350 187,500 Common stock issued in settlement of accrued obligations 53,500 53 111,760 111,813 Cancellation of shares regarding the purchase of Chatterley Elegant Desserts, Inc. (60,000) (60) 60 Fair market value of warrant to acquire 8,610 shares of common stock issued to a lender in order to obtain financing for the purchase of the operating assets of Greenberg Desserts Associates Limited Partnership, valued at $.500 per share 4,305 4,305 Purchase of treasury stock (95,625) (95,625) Treasury stock issued in settlement of accrued obligations 8,750 8,750 Net income for the year ended December 31, 1999 118,579 118,579 --------- ------ ----------- ----------- -------- -------- Balance at December 31, 1999 5,245,250 5,245 11,510,063 (10,363,621) (334,244) 817,443 Purchase of treasury stock (112,774) (112,774) Treasury stock issued upon exercise of warrant (145,989) 327,989 182,000 Net loss for the nine months ended September 30, 2000 (285,496) (285,496) --------- ------ ----------- ----------- -------- -------- (5,245,250) $5,245 $11,364,074 ($10,649,117) ($119,029) $601,173 ========= ====== =========== =========== ======== ========

See notes to consolidated financial statements. F-4 CREATIVE BAKERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Unaudited)

2000 1999 ---- ---- Operating activities: Loss from continuing operations $(265,434) $(45,895) Adjustments to reconcile loss from continuing operations to cash provided from continuing operations: Depreciation and amortization 156,602 88,702 Gain on sale of equipment (5,750) Gain on sale of marketable securities 3,216 Changes in other operating assets and liabilities from continuing operations: Accounts receivable (2,735) (93,902) Inventory (19,386) (19,315) Prepaid expenses and other current assets 66,208 9,600 Accounts payable 27,007 41,272 Accrued expenses and other current liabilities (101,583) 86,024 Deferred rent (16,083) (10,271) -------- -------- Net cash provided by (used in) operating activities (161,154) 59,431 Net cash provided by (used in) discontinued operations 112 (92,047) -------- -------- Net cash used in operating activities (161,042) (32,616) -------- -------- Investing activities: Proceeds from sale of marketable securities 4,533 Proceeds from sale of equipment 25,000 Purchase of property and equipment (10,150) (27,029) -------- -------- Net cash provided by (used in) investing activities 14,850 (22,496) -------- -------- Financing activities: Proceeds from issuance of common stock and warrants 182,000 187,500 Purchase of treasury stock (112,774) (17,250) Payment of debt (18,139) (37,249) -------- -------- Net cash provided by financing activities 51,087 133,001 -------- -------- Net increase (decrease) in cash and cash equivalents (95,105) 77,889 Cash and cash equivalents, beginning of period 114,971 129,626 -------- -------- Cash and cash equivalents, end of period $ 19,866 $207,515 ======== ======== Supplemental disclosures: Cash paid during the period: Interest paid during the period Continuing operations $ 5,418 $ 12,505 ======== ======== Discontinued operations $ 0 $ 0 ======== ========

See notes to condensed consolidated financial statements. F-5 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 1. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for the three months ended is not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report for the year ended December 31, 1999 included in its Annual Report filed on Form 10-KSB. 2. Principles of consolidation: The accompanying consolidated financial statements include the account of the Company and all of its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. 3. Nature of operations, risks and uncertainties: The Company is a manufacturer of baking and confectionery products which are sold to supermarkets, food distributors, educational institutions, restaurants, mail order and to the public. Although the Company sells its products throughout the United States, its main customer base is on the East Coast of the United States. The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. The Company maintains all of its cash balances in New Jersey financial institutions. The balances are insured by the Federal Deposit Insurance Company (FDIC) up to $100,000. Cash and cash equivalents include all short-term debt securities with maturities of three months or less. F-6 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 4. Accounts receivable: Following is a summary of receivables at September 30, 2000: Trade accounts $331,874 Less allowance for doubtful accounts (15,000) -------- $316,874 ======== At September 30, 2000, accounts receivable in the amount of $331,874 was pledged as collateral in connection with the Company's line of credit. 5. Inventories: Inventories are stated at the lower of cost or market and consist of: Finished goods $122,334 Raw materials 107,895 Supplies 72,441 -------- $302,670 ======== 6. Property and equipment: Baking equipment $1,386,476 Furniture and fixtures 78,864 Leasehold improvements 180,422 ---------- 1,645,762 Less: Accumulated depreciation and amortization 1,124,056 ---------- $ 521,706 ========== F-7 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 6. Property and equipment (continued): Depreciation expense charged to operations was $95,918 and $88,702 in 2000 and 1999, respectively. Machinery and equipment with a cost of $197,000 is pledged as collateral for the Company's line of credit. The useful lives of property and equipment for purposes of computing depreciation are:

Years ----- Machinery and equipment 10 Furniture and computers 5 Leasehold improvements 10-15

7. Intangible assets: The acquisition agreement of Greenberg's - L.P. contained a provision for a covenant not to compete of $125,000 which management is amortizing over its five year term. Amortization of the covenant charged to operations was $12,500 in 2000 and $18,750 in 1999. The excess cost over the fair value of the net assets acquired from J.M. Specialties, Inc. aggregated $1,213,565. This goodwill has been amortized over its estimated useful life of fifteen years. Amortization charged to operations amounted to $60,684 in 2000 and 1999. 8. Note payable, bank: As of September 30, 2000, the Company had an available revolving line of credit with Hudson United Bank in the amount of $150,000, of which $120,649 had been utilized. The interest rate at September 30, 2000 was 9.50%. F-8 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 9. Commitments and contingencies: The Company is obligated under a triple net lease for use of 29,362 square feet of office and plant space in New Jersey with the lease commencing January 31, 1994 and expiring December 31, 2004. The minimum future rentals on the baking facility is as follows:

Facility --------- September 30, 2001 $200,000 September 30, 2002 200,000 September 30, 2003 200,000 September 30, 2004 200,000 Thereafter 80,000 -------- $880,000 ========

Rent expense for all operating leases amounted to $156,856 in 2000 and $158,252 in 1999. 10. Income taxes: The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS No. 109") "Accounting for Income Taxes", which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and income tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period, plus or minus the change during the period in deferred tax assets and liabilities. There was no cumulative effect of adoption or current effect in continuing operations mainly because the Company has accumulated a net operating loss carryforward of $8,942,204, which expires at the end of the years 2010 through 2013. The Company has made no provision for a deferred tax asset due to the net operating loss carryforward because a valuation allowance has been provided which is equal to the deferred tax asset. It cannot be determined at this time that a deferred tax asset is more likely than not to be realized. F-9 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 12. Earnings per share: Primary earnings per share is computed based in the weighted average number of shares actually outstanding plus the shares that would have been outstanding assuming conversion of the common stock purchase warrants which are considered to be common stock equivalents. However, according to FASB 128, effective for financial statements issued and annual periods issued after December 15, 1997, entities with a loss from continuing operations, the exercise of any potential shares increases the number of shares outstanding and results in a lower loss per share. Thus, potential issuances are excluded from the calculation of earnings per share. These common stock purchase warrants amounted to 1,339,575 in 2000 and 1,689,575 in 1999. Reconciliation of shares used in computation of earnings per share:

2000 1999 ---- ---- Weighted average of shares actually outstanding 5,245,250 5,282,781 Common stock purchase warrants --------- --------- Primary and fully diluted weighted average common shares outstanding 5,245,250 5,282,781 ========= =========

13. Supplemental schedule of non-cash investing and financing activities:

2000 1999 ---- ---- Issuance of common shares in consideration of legal, consulting fees and other obligations $ 0 $120,562 ======= ======== Purchase of new equipment through a capital lease $ 0 $ 43,200 ======= ========

F-10 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 14. Discontinued operations: In 1998, the Company adopted a formal plan to close WGJ Desserts and Cafes, Inc., its New York manufacturing facility, which was done in July of 1998 and to dispose of its one remaining retail store, which was accomplished in November 1998. The New Jersey facility was unaffected and still continues to sell and manufacture. The sale of the final retail location resulted in a selling price of $405,000 which includes a note receivable of $295,000. The sale resulted in a gain of $321,350 which is included in other income. On November 3, 1998, the Company sold its one remaining retail facility for $405,000 which represented disposition of equipment and a license to sell under the "William Greenberg, Jr. Desserts and Cafes" name. The agreement called for a cash down payment of $110,000 with the remainder being paid on a note receivable due in semi-annual installments of $36,875 plus interest at prime. The maturities of the notes are as follows: September 30, 2001 $ 73,750 September 30, 2002 73,750 September 30, 2003 36,875 -------- $184,375 ======== In the event that the licensee opens and operates any additional retail store(s) utilizing the license (other than the original retail store) and the annual gross retail sales of any such store(s) exceeds $400,000, then the licensee shall pay the licensor (the Company) a five percent royalty on all sales in excess of the $400,000 of sales in each store. The licensee shall pay the licensor a royalty on a semi-annual basis of 3% of all mail order sales in excess of $100,000. Net liabilities, less assets to be disposed of, of WGJ Desserts, Inc. consisted of the following as of September 30, 2000: Liabilities: Accounts payable $175,918 Accrued expenses 405,648 -------- 581,566 -------- Assets: Notes receivable 184,375 Interest receivable 6,025 -------- 190,400 -------- $391,166 ======== F-11 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 14. Discontinued operations (continued): Information relating to discontinued operations for WGJ Desserts and Cafes, Inc. for the nine months ended September 30, 2000 and 1999 is as follows:

2000 1999 ---- ---- Operating expenses $ 33,615 $99,897 -------- ------- Net loss from operations (33,615) (99,897) Settlement income 80,005 Interest income 13,553 15,918 -------- ------- Net loss from discontinued operations $(20,062) $(3,974) ======== =======

F-12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATION GENERAL: The company's financial results for the third quarter of 2000 were disappointing. Sales were down, resulting in a net loss. Last year corresponding quarter the company had received a substantial order from a major chain. Due to consolidation they did not choose to renew this order. However, we have been pursuing new business aggressively and have approval on our new single serve (mini cake from a major chain which potentially could increase our business by 50%). This item will also increase our margins because of production efficiencies. Other chains have also expressed interest in the single serve cakes. The introduction of the Healthy Bakery Sugar Free mini single serve cakes will take place the first quarter of 2001. At Sep. 30, 2000 to the extent the Company may have taxable income in future periods, there is available a net operating loss for federal income tax purposes of approximately $8,942,204 which can be used to reduce the tax on income up to that amount through the year 2011. b. RESULTS OF OPERATIONS: Results of Operations (continuing) for three months ending Sep. 30, 2000 vs. three months ended Sep. 30, 1999: The Company's consolidated revenues aggregated $954,948 in the 3rd quarter 1999 vs. $1,199,457 in the 3rd quarter 1999. The cost of goods sold was $861,142 vs. $1,044,269. Operating expenses were $265,477 vs. $141,199. As a result, the loss from operations was $171,671 vs. income of $13,989. The net interest expense for the 3rd quarter of 2000 was $8,025. Other income (expense) including interest for 3rd quarter of 2000 amounted to $754. The resulting net loss from continuing operations aggregated $170,917 for 3rd quarter 1999 or ($.03) per share vs. a net income of $14,715 for the 3rd quarter 1999 or $.01 per share. Net income from discontinued operations was $4,403 for 3rd quarter 2000 or $.01 per share vs. net loss of $27,789 for 3rd quarter 1999 or ($.01) per share. The resulting net loss aggregated $166,514 for 3rd quarter 2000 or ($.03) per share vs. a net loss of $13,074 for 3rd quarter 1999 or ($.01) per share. Batter Bake-Chatterley Inc., (the BBC subsidiary) offers a line of batter and frozen finished cakes, muffins, tart shells and other desserts. c. PLAN OF OPERATION: The next phase in the company's plan of action is to build up the wholesale end of its business with fewer, newer and more profitable products. This process includes the following: Calling on supermarket headquarters and chain restaurant accounts. Brokers have been appointed and sales calls and visits are being made. Introduce single serve cakes under The Healthy Bakery brand. This has already begun and supermarket chains throughout the country have either expressed interest or made commitments Enter into co-packing arrangements whereby the company would introduce private label products of other bakery operations. LIQUIDITY AND CAPITAL RESOURCES: Since its inception the Company's only source of working capital has been the $8,642,500 received from the issuance of its securities. In June 1995, The Company issued 180,000 shares of common stock to unrelated parties for $600,000 and in August 1995, the Company issued 60,000 shares of its common stock to unrelated parties for $200,000. In connection with the acquisition of Greenberg's- L.P., the Company received $2,000,000 from the sale of two notes to InterEquity Capital Partners, L.P. ("InterEquity"). During October 1995, the Company received net proceeds of $4,900,000 from the sale of 1,150,000 shares of its common stock in an initial public offering. During January 1997 the Company received net proceeds of $1,747,500 from the private placement of 1,875,500 common stock purchase warrants at $1.10 per warrant. During October 1997 the Company received net proceeds of $883,000 from the exercise of a portion of these common stock warrants. During January 1999, the Company received a further $187,500 from the exercise of another 150,000 of these warrants. Of the $5,700,000 proceeds from the aforementioned stock sales: (i) $2,125,000 was issued to repay the InterEquity debt including interest; (ii) $2,615,000 was used in operations; (iii) $765,00 was used to purchase property, equipment and leaseholds; and (iv) $195,000 was used for general corporate purposes. The $1,650,000 proceeds from the private placement warrants was used to acquire JMS. Of the $1,071,000 proceeds from the exercise of warrants $325,000 was used for consolidation and merger of JMS and Chatterley and the balance is being used for corporate purposes and to fund new business. As of Sep. 30, 2000, the Company (continuing operations) has a negative working capital of approximately $242,585 as compared to a negative working capital of $200,939 at Sep. 30, 1999. The Company is continuing to seek new and profitable avenues of growth. Reception to our new mini cakes has been encouraging. Future plans call for producing these products sugar free for people on special diets. The Company is still on a stock repurchase program. It will continue repurchasing stock at opportune moments. This stock will be used to cover options/acquisitions. The Company will continue to seek out potential candidates for merger or acquisition that meet its specific needs. 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 Nov. 14, 2000. CREATIVE BAKERIES, INC. By: /s/ Philip Grabow -------------------------- Philip Grabow President and Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on May 20, 1999.

Signatures Title ---------- ----- President, Chief Executive /s/ Philip Grabow Officer/Director ---------------------- Philip Grabow Chief Financial Officer /s/ Ashwin R. Shah (Principal Accounting Officer) ---------------------- Ashwin R. Shah Director ---------------------- Richard Fector /s/ Raymond J. McKinstry Director ---------------------- Raymond J. McKinstry /s/ Kenneth Sitomer Director ---------------------- Kenneth Sitomer /s/ Karen Brenner Director ---------------------- Karen Brenner /s/ Yona Gonen Director ---------------------- Yona Gonen