10QSB 1 a33202.txt CREATIVE BAKERIES, INC. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2002 ---------------- or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1939 For the transition period from to ------------ ------------ Commission File Number: 1-13984 ------- CREATIVE BAKERIES, INC. (Exact name of small business issuer as specified in its charter) New York 22-3576940 ------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 20 Passaic Avenue, Fairfield, NJ 07004 -------------------------------------- (Address of principal executive offices) Issuer's telephone number, including area code: (973) 808-9292 ------------------- Former name: William Greenberg Jr. Desserts and Cafes, Inc. Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of Shares outstanding of each of the Issuer's classes of common stock, as of the latest practicable date. Class Outstanding at June 30, 2002 ------------------------------ ---------------------------- Common Stock, par value $0.001 per share 5,121,750 INDEX Part I. Financial information Item 1. Condensed consolidated financial statements: Balance sheet as of June 30, 2002 F-2 Statement of operations for the six and three months ended June 30, 2002 and 2001 F-3 Statement of cash flows for the six months ended June 30, 2002 and 2001 F-4 Notes to condensed consolidated financial statements F-5 - F-8 Item 2. Management's discussion and analysis of financial condition Part II. Other information Signatures CREATIVE BAKERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET - JUNE 30, 2002 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 3,043 Accounts receivable, less allowance for doubtful accounts of $7,000 214,355 Inventories 268,540 Prepaid expenses and other current assets 23,528 ----------- Total current assets 509,466 ----------- Property and equipment, net 364,170 ----------- Other assets: Goodwill 50,000 Tradename, net of amortization 88,500 Security deposits 4,964 ----------- 143,464 ----------- $ 1,017,100 =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Loans payable, other $ 7,500 Cash overdraft 29,859 Accounts payable 432,283 Accrued expenses 119,481 ---------- Total current liabilities 589,123 ---------- Other liabilities: Deferred rent 83,567 Net liabilities of discontinued operations less assets to be disposed of 479,048 ---------- 562,615 ---------- 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, 5,245,250 shares issued, 5,121,750 outstanding 5,245 Common stock subscribed, not issued 96,250 Additional paid in capital 11,335,530 Deficit (11,481,178) ---------- (44,153) Common stock held in treasury, 123,500 shares (90,485) ---------- (134,638) ----------- $1,017,100 ========== See notes to condensed consolidated financial statements. F-2 CREATIVE BAKERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS SIX AND THREE MONTHS ENDED JUNE 30, 2002 AND 2001 (Unaudited)

Six Months Three Months Ended June 30, Ended June 30, 2002 2001 2002 2001 ---- ---- ---- ---- Net sales $1,455,656 $1,887,720 $ 836,234 $1,119,092 Cost of sales 1,206,816 1,545,417 620,365 949,985 ---------- ---------- --------- ---------- Gross profit 248,840 342,303 215,869 169,107 Selling, general and administrative expenses 383,478 444,070 228,226 218,630 ---------- ---------- --------- ---------- Loss from continuing operations and before other income (expense) (134,638) (101,767) (12,357) (49,523) ---------- ---------- --------- ---------- Other income (expense): Forgiveness of debt 40,000 40,000 Bad debt (4,270) (4,270) Miscellaneous income 2,393 2,393 Interest income 753 11 Interest expense (5,384) (2,420) ---------- ---------- --------- ---------- 35,730 2,238 35,730 (16) ---------- ---------- --------- ---------- Income (loss) from continuing operations (98,908) (104,005) 23,373 (49,539) Discontinued operations: Income from operations of New York facility to be disposed of 1,314 5,389 450 2,250 ---------- ---------- --------- ---------- Net income (loss) ($ 97,594) ($ 98,616) $ 23,823 ($ 47,289) ========== ========== ========= ========== Earnings per common share: Primary and fully diluted: Loss from continuing operations ($ 0.02) ($ 0.02) $ 0.00 ($ 0.01) Discontinued operations 0.00 0.00 0.00 0.00 ----------------------------------------------------------- Net income (loss) per common share ($ 0.02) ($ 0.02) $ 0.00 ($ 0.01) ========== ========== ========= ========== Weighted average number of common shares outstanding 5,121,750 5,121,750 5,121,750 5,121,750 ========== ========== ========= ==========

See notes to condensed consolidated financial statements. F-3 CREATIVE BAKERIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (Unaudited)

2002 2001 --------- --------- Operating activities: Loss from continuing operations ($ 98,908) ($104,005) Adjustments to reconcile loss from continuing operations to cash used in continuing operations: Depreciation and amortization 64,106 102,103 Common stock issued for services 6,250 Bad debt 4,270 Forgiveness of debt (40,000) Changes in other operating assets and liabilities from continuing operations: Accounts receivable 86,169 (24,754) Inventory (115,962) 29,335 Prepaid expenses and other current assets 48,089 19,620 Accounts payable (47,188) (98,008) Accrued expenses and other current liabilities (78,292) (3,572) Deferred rent (10,966) (13,366) --------- --------- Net cash used in continuing operations (182,432) (92,647) Net cash provided by discontinued operations 34,000 64,233 --------- --------- Net cash used in operating activities (148,432) (28,414) --------- --------- Financing activities: Cash overdraft 29,859 Payment of debt (24,718) --------- --------- Net cash provided by (used in) financing activities 29,859 (24,718) --------- --------- Net decrease in cash and cash equivalents (118,573) (53,132) Cash and cash equivalents, beginning of period 121,616 129,320 --------- --------- Cash and cash equivalents, end of period $ 3,043 $ 76,188 ========= ========= Supplemental disclosures: Cash paid during the period for: Interest: Continuing operations $ 0 $ 5,389 ========= ========= Discontinued operations $ 0 $ 0 ========= ========= Non-cash investing and financing activities: Property and equipment purchased and included in accounts payable $ 58,000 $ 0 ========= =========

See notes to condensed consolidated financial statements. F-4 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2002 AND 2001 1. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for the 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. 4. Accounts receivable: Following is a summary of receivables at June 30, 2002: Trade accounts $221,355 Less allowance for doubtful accounts (7,000) -------- $214,355 ======== 5. Inventories: Inventories at June 30, 2002 consist of: Finished goods $ 51,579 Raw materials 72,310 Supplies 144,651 --------- $ 268,540 ======== F-5 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2002 AND 2001 6. Property and equipment: Baking equipment $1,338,226 Furniture and fixtures 81,364 Leasehold improvements 180,422 ---------- 1,600,012 Less: Accumulated depreciation and amortization 1,235,842 ---------- $ 364,170 ========== Depreciation expense charged to operations was $62,606 and $61,647 in 2002 and 2001, respectively. 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 July, 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 July, 2002. 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 -------- June 30 2003 $200,000 June 30, 2004 200,000 June 30, 2005 100,000 -------- $500,000 ========

Rent expense for all operating leases amounted to $108,145 in 2002 and $102,142 in 2001. 10. Income taxes: 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-6 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 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 5,121,750 5,121,750 Common stock purchase warrants --------- --------- Primary and fully diluted weighted average common shares outstanding 5,121,750 5,121,750 ========= =========

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 June 30, 2002. F-7 CREATIVE BAKERIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2002 AND 2001 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 continues to operate. 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: November, 2002 $ 36,875 ======== In the event that the licensee opens and operates any additional retail store(s) utilizing the license (other than the original retail store) and the annual gross retail sales of any such store(s) exceeds $400,000, then the licensee shall pay the licensor (the Company) a five percent royalty on all sales in excess of the $400,000 of sales in each store. The licensee shall pay the licensor a royalty on a semi-annual basis of 3% of all mail order sales in excess of $100,000. Total liabilities, less assets to be disposed of, of WGJ Desserts, Inc. consisted of the following as of June 30, 2002: Liabilities: Accounts payable $112,462 Accrued expenses 403,911 -------- 516,373 -------- Assets: Notes receivable 36,875 Interest receivable 450 -------- 37,325 -------- Net liabilities $479,048 ======== Information relating to discontinued operations for WGJ Desserts and Cafes, Inc. for the six months ended June 30, 2002 and 2001 is as follows:

2002 2001 ---- ---- Operating expenses $ 0 $ 0 -------- ------ Loss from operations 0 0 Interest income 1,314 5,389 -------- ------ Income from discontinued operations $ 1,314 $5,389 ======== ======

F-8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS A. General The Company had acquired the assets of the Brooklyn Cheesecake Company this past March. In an effort to improve, the overall image of the Company, registration of the name Brooklyn Cheesecake & Desserts is currently being applied for from the State of New Jersey. The Company refers to itself on stationary, bank accounts and when answering the telephone as the Brooklyn Cheesecake and Desserts Company. Marketing efforts to increase sales revenues will begin to yield results in the fourth quarter of 2002. Commitments for fund raising products mainly cheesecakes, will be increased significantly (approximately 100%). Mini cakes have been shipped to three divisions of Flemming Foods with reorders in production. Mini cakes have received preliminarily approval for on air selling by QVC. A container of cheesecake has been ordered by a Japanese distributor and is scheduled for shipment in late August. Controls are in place to assist in reducing costs and increasing profitability. The Company has not reached break-even sales. Every effort is being expended to increase sales revenue. The company still has a negative cash flow of $ 79,657 however, this has been reduced by $54,109 as compared the same period of 2001. At June 30, 2002 to the extent the Company may have taxable income in future periods, there is available a net operating loss for federal income tax purposes of approximately $8,680,450 which can be used to reduce the tax on income up to that amount through the year 2019. B. Results of Operations The Company's consolidated revenues from continuing operations aggregated $836,234 and $1,119,092 for the quarters ended June 30, 2002 and 2001 respectively, a decrease of 25%. The cost of goods sold was $620,365 and $949,985 respectively, a decrease of 35%. Operating expenses were $228,226 and $218,630 respectively, an increase of 4%. As a result, the loss from continuing operations before other income (expense) was $12,357 and $49,523 respectively, a decrease of 75%. The net gain from continuing operations in the quarter was $23,373 vs. a net loss of 49,539 in the previous year. The drop in sales volume is attributable to the sale of less profitable batter business, which also resulted in substantially reducing the net operating loss for the quarter. Depreciation and amortization for 2nd quarter 2002 decreased as compared to 2nd 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 2nd quarter 2002 and 2001. The WGJ subsidiary showed a gain from operations of $450 and $2,250 in 2nd quarter 2002 and 2001 respectively. 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 June 30, 2002, the Company had a negative working capital from continuing operations of approximately $79,657 as compared to a negative working capital of $133,766 at June 30, 2001. CAPITAL RESOURCES: Although the Company has previously been successful in obtaining sufficient capital funds through issuance of common stock and warrants, there can be no assurance that the Company will be able to do so in the future. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on August 14, 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 August 14, 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