10QSB 1 a32702.txt CREATIVE BAKERIES, INC. 10QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2002 ----------------- or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1939 For the transition period from to ------------ Commission File Number: 1-13984 ------- CREATIVE BAKERIES, INC. (Exact name of small business issuer as specified in its charter) New York 22-3576940 ------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number)
20 Passaic Avenue, Fairfield, NJ 07004 -------------------------------------- (Address of principal executive offices) Issuer's telephone number, including area code: (973) 808-9292 ------------------- Former name: William Greenberg Jr. Desserts and Cafes, Inc. Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of Shares outstanding of each of the Issuer's classes of common stock, as of the latest practicable date.
Class Outstanding at March 31, 2002 ------------------------------ ----------------------------- 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 March 31, 2002 F-2 Statement of operations for the three months ended March 31, 2002 and 2001 F-3 Statement of cash flows for the three months ended March 31, 2002 and 2001 F-4 Notes to condensed consolidated financial statements F-5 - F-9 Item 2. Management's discussion and analysis of financial condition Part II. Other information Signatures
CREATIVE BAKERIES, INC. CONDENSED CONSOLIDATED BALANCE SHEET - MARCH 31, 2002 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 4,448 Accounts receivable, less allowance for doubtful accounts of $7,000 218,351 Inventories 171,584 Prepaid expenses and other current assets 43,282 ------------ Total current assets 437,665 ------------ Property and equipment, net 382,588 ------------ Other assets: Goodwill 50,000 Tradename, net of amortization 89,625 Security deposits 4,964 ------------ 144,589 ------------ $ 964,842 ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Loans payable, other $ 7,500 Accounts payable 417,065 Accrued expenses 168,459 ------------ Total current liabilities 593,024 ------------ Other liabilities: Deferred rent 89,050 Net liabilities of discontinued operations 441,228 ------------ 530,278 ------------ Stockholders' equity (deficiency): Preferred stock $.001 par value, authorized 2,000,000 shares, none issued Common stock, $.001 par value, authorized 10,000,000 shares, issued 5,245,250 shares 5,245 Common stock subscribed, not issued 96,250 Additional paid in capital 11,335,530 Deficit (11,505,000) ------------ (67,975) Common stock held in treasury, 158,500 shares (90,485) ------------ (158,460) ------------ $ 964,842 ============
See notes to condensed consolidated financial statements. F-2 CREATIVE BAKERIES, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (Unaudited)
2002 2001 ---- ---- Net sales $619,422 $768,628 Cost of sales 586,451 608,384 -------- -------- Gross profit 32,971 160,244 Selling, general and administrative expenses 155,252 212,488 -------- -------- Loss from continuing operations and before other income (expense) (122,281) (52,244) --------- -------- Other income (expenses): Interest income 742 Interest expense (2,964) -------- (2,222) -------- Loss from continuing operations (122,281) (54,466) Discontinued operations: Income from disposal of New York facility 864 3,138 -------- -------- Net loss $(121,417) $( 51,328) ======== ======== Earnings per common share: Basic and fully diluted: Loss from continuing operations ($ 0.02) ($ 0.01) Discontinued operations 0.00 0.00 -------- -------- Net loss per common share ($ 0.02) ($ 0.01) ======== ======== Weighted average number of common shares outstanding 5,245,250 5,245,250 ========= =========
See notes to condensed consolidated financial statements. F-3 CREATIVE BAKERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (Unaudited)
2002 2001 ---- ---- Operating activities: Loss from continuing operations $(122,281) $(54,466) Adjustments to reconcile loss from continuing operations to cash used in continuing operations: Depreciation and amortization 31,563 51,051 Common stock issued for services 6,250 Changes in other operating assets and liabilities from continuing operations: Accounts receivable 82,173 62,997 Inventory (19,006) 14,374 Prepaid expenses and other current assets 28,334 10,271 Accounts payable (49,406) (206,037) Accrued expenses and other current liabilities (69,312) 2,385 Deferred rent (5,483) (6,683) -------- -------- Net cash used in continuing operations (117,168) (126,108) Net cash provided by discontinued operations 20,932 -------- -------- Net cash used in operating activities (117,168) (105,176) -------- -------- Financing activities: Payment of debt (12,638) -------- Net cash used in financing activities (12,638) -------- Net decrease in cash and cash equivalents (117,168) (117,814) Cash and cash equivalents, beginning of period 121,616 129,320 -------- -------- Cash and cash equivalents, end of period $ 4,448 $ 11,506 ======== ======== Supplemental disclosures: Cash paid during the period for: Interest: Continuing operations $ 0 $ 2,964 ======== ======== Discontinued operations $ 0 $ 0 ======== ========
See notes to condensed consolidated financial statements. F-4 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2002 AND 2001 1. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for the 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, 2001 included in its Annual Report filed on Form 10-KSB. Going concern: The Company has incurred losses from continuing operations over the last several quarters. Management has described its plan of action in regard to this uncertainty in its latest annual report filed December 31, 2001. 2. Principles of consolidation: The accompanying consolidated financial statements include the account of the Company and all of its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. 3. Nature of operations, risks and uncertainties: The Company is a manufacturer of baking and confectionery products which are sold to supermarkets, food distributors, educational institutions, restaurants, mail order and to the public. Although the Company sells its products throughout the United States, its main customer base is on the East Coast of the United States. The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. The Company maintains all of its cash balances in New Jersey financial institutions. The balances are insured by the Federal Deposit Insurance Company (FDIC) up to $100,000. At March 31, 2002, the Company had no uninsured cash balances. 4. Accounts receivable: Following is a summary of receivables at March 31, 2002: Trade accounts $225,351 Less allowance for doubtful accounts (7,000) --------- $218,351 =========
F-5 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2002 AND 2001 5. Inventories: Inventories at March 31, 2002 consist of: Finished goods $ 23,944 Raw materials 58,677 Supplies 88,963 ---------- $ 171,584 ==========
6. Property and equipment: Baking equipment $1,325,228 Furniture and fixtures 81,364 Leasehold improvements 180,422 ---------- 1,587,014 Less: Accumulated depreciation and amortization 1,204,426 ---------- $ 382,588 ==========
Depreciation expense charged to operations was $31,188 and $30,823 in 2002 and 2001, 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. Intangible assets: On March 7, 2002 the Company purchased the rights to the tradenames Brooklyn Cheesecake Company, Inc. and Brooklyn Cheesecake and Desserts Company, Inc. and the related corporate logo in exchange for 300,000 shares of the Company's common stock, valued on the purchase date at $90,000. The tradename rights are being amortized on the straight-line basis over a fifteen year term. 8. Common stock subscribed, but not issued: On February 8, 2002 the Company granted a stock incentive of 25,000 shares of common stock of the Company to an employee. The shares were issued in early May, 2002. On March 7, 2002 the Company entered into an agreement to purchase the tradename and logo of Brooklyn Cheesecake Company, Inc. in exchange for shares of the Company's common stock as described in Note 7. The Shares were issued in early May, 2002. F-6 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2002 AND 2001 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 -------- March 31, 2003 $200,000 March 31, 2004 200,000 March 31, 2005 150,000 -------- $550,000 ========
Rent expense for all operating leases amounted to $55,874 in 2002 and $52,357 in 2001. 10. Income taxes: The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS No. 109") "Accounting for Income Taxes", which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and income tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period, plus or minus the change during the period in deferred tax assets and liabilities. There was no cumulative effect of adoption or current effect in continuing operations mainly because the Company has accumulated a net operating loss. The Company has made no provision for a deferred tax asset due to the net operating loss carryforward because a valuation allowance has been provided which is equal to the deferred tax asset. It cannot be determined at this time that a deferred tax asset is more likely than not to be realized. The Company has a loss carryforward of $8,680,450 that may be offset against future taxable income. The carryforward losses expire at the end of the years 2006 through 2019. F-7 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2002 AND 2001 11. Earnings per share: Primary earnings per share is computed based on 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 beginning after December 15, 1997, entities with a loss from continuing operations should not include the exercise of potential shares in the calculation of earnings per share since the increase would result in a lower loss per share. Thus, common stock purchase warrants and stock options are excluded from the calculation of earnings per share. Reconciliation of shares used in computation of earnings per share:
2002 2001 ---- ---- Weighted average of shares actually outstanding 5,245,250 5,245,250 Common stock purchase warrants --------- --------- Primary and fully diluted weighted average common shares outstanding 5,245,250 5,245,250 ========= =========
12. Common stock options: On February 8, 2002, the Company effectuated a non-statutory stock option plan for the purpose of advancing the interests of the Company and its stockholders by helping the Company retain the services of key management employees. The total number of shares set aside for the plan is 75,000. Under the plan, the option exercise price approximates the fair market value of the Company's common stock at the date of the grant. The options become exercisable as follows: August 31, 2002 25,000 shares August 31, 2003 25,000 shares August 31, 2004 25,000 shares
The Company has elected to follow APB-25 (Accounting for Stock Issued to Employees) in accounting for its employee stock options. Accordingly, no compensation expense is recognized in the Company's financial statements because the exercise price of the Company's employee stock options equals the market price of the Company's common stock on the date of grant. The Company has determined that the pro forma net income impact under Financial Accounting Standards Board Statement No. 123 (Accounting for Stock-Based Compensation) does not produce a material difference. The Company has noted that the volatility of the stock makes valuation by any other method inconsequential. 13. Related party transactions: As described in Note 7, the Company purchased the tradename and logo of Brooklyn Cheesecake Company, Inc. in exchange for 300,000 shares of the Company's common stock. Brooklyn Cheesecake Company, Inc. was wholly owned by the chief executive officer of Creative Bakeries, Inc. The Company also purchased $45,000 of baking equipment in the same purchase transaction. This amount is included in the Company's accounts payable at March 31, 2002. F-8 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2001 AND 2000 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. On November 3, 1998, the Company sold its one remaining retail facility for $405,000 which represented disposition of equipment and a license to sell under the "William Greenberg, Jr. Desserts and Cafes" name. The agreement called for a cash down payment of $110,000 with the remainder being paid on a note receivable due in semi-annual installments of $36,875 plus interest at prime. The maturities of the notes are as follows: March 31, 2003 $ 73,750 ========
In the event that the licensee opens and operates any additional retail store(s) utilizing the license (other than the original retail store) and the annual gross retail sales of any such store(s) exceeds $400,000, then the licensee shall pay the licensor (the Company) a five percent royalty on all sales in excess of the $400,000 of sales in each store. The licensee shall pay the licensor a royalty on a semi-annual basis of 3% of all mail order sales in excess of $100,000. Total liabilities, less assets to be disposed of, of WGJ Desserts, Inc. consisted of the following as of March 31, 2002: Liabilities: Accounts payable $112,462 Accrued expenses 403,911 -------- 516,373 -------- Assets: Notes receivable 73,750 Interest receivable 1,395 -------- 75,145 -------- Net liabilities $441,228 ========
Information relating to discontinued operations for WGJ Desserts and Cafes, Inc. for the three months ended March 31, 2002 and 2001 is as follows:
2002 2001 ----- ---- Operating expenses $ 0 $ 0 -------- ------ Loss from operations 0 0 Interest income 864 3,138 -------- ------ Income from discontinued operations $ 864 $3,138 ======== ======
F-9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS A. General As of March 31, 2002 to the extent the Company may have taxable income in future periods, there is available a net operating loss for federal income tax purposes of approximately $8,680,450 which can be used to reduce the tax on income up to that amount through the year 2019. On March 7, 2002, the assets of The Brooklyn Cheesecake Company were purchased for 300,000 shares of Creative Bakeries Inc. common stock and $45,000 in cash. The company will use the Brooklyn Cheesecake Company name as its operating name for day to day operations. Despite the drop in sales as compared to the first quarter of 2001, management remains very optimistic that marketing efforts of its cake lines will exceed the lost revenue associated with the sale of the muffin batter operations. The Company continues the process of reconfiguring its product mix and cost structure to ensure adequate margins despite reduction in sales volume. The emphasis will be on marketing cheesecake and gourmet cakes. The Company will continue to seek out potential candidates for merger or acquisition that meet its specific needs. B. Results of Operations The Company's consolidated revenues from continuing operations aggregated $619,422 and $768,628 for the quarters ended March 31, 2002 and 2001 respectively, a decrease of 20%. The cost of goods sold was $586,451 and $608,384 respectively, a decrease of 4%. Operating expenses were $155,252 and $212,488 respectively, a decrease of 27%. As a result, the loss from continuing operations before other income (expense) was $122,281 and $52,244 respectively, an increase of 234%. The net loss from continuing operations was $122,281 and $54,466 respectively. The substantial increase in net loss was due to the drop in sales volume. Depreciation and amortization for 1st quarter 2002 decreased as compared to 1st quarter 2001 due to assets written down or written off for the year ended December 31, 2001. The company's consolidated revenues from its discontinued operation, the WGJ subsidiary were $0 in 1st quarter 2002 and in 1st quarter 2001. The WGJ subsidiary showed a loss from discontinued operations of $864 in 1st quarter 2002 vs. a gain of $3,138 in 1st quarter 2001. SEGMENT INFORMATION: Not applicable since retail operations were discontinued. LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY Since its inception the Company's only source of working capital has been the $8,455,000 received from the issuance of its securities. As of March 31, 2002, the Company had a negative working capital from continuing operations of approximately $155,359 as compared to a negative working capital of $171,898 at March 31, 2001. CAPITAL RESOURCES: Although the Company has previously been successful in obtaining sufficient capital funds through issuance of common stock and warrants, there can be no assurance that the Company will be able to do so in the future. F-10 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on May 15, 2002. CREATIVE BAKERIES, INC. By: /s/ Ron Schutte --------------------------------- President and Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on May 15, 2002.
Signatures Title ----- /s/Ron Schutte President, Chief Executive Officer/Director ---------------------------------- Ron Schutte Director ---------------------------------- Philip Grabow Director ---------------------------------- Richard Fechtor /s/ Raymond J. McKinstry Director ---------------------------------- Raymond J. McKinstry /s/Karen Brenner Director ---------------------------------- Karen Brenner /s/Yona Abrahami Director ---------------------------------- Yona Abrahami