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, 2003
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or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1939
For the transition period from to
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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
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(Address of principal executive offices)
Issuer's telephone number, including area code: (973) 808-9292
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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, 2003
-------------------------- ----------------------------
Common Stock, par value $0.001
per share 5,446,750
INDEX
Part I. Financial information
Item 1. Condensed consolidated financial statements:
Balance sheet as of June 30, 2003 F-2
Statement of operations for the six and
three months ended June 30, 2003 and 2002 F-3
Statement of cash flows for the six months
ended June 30, 2003 and 2002 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.
CONDENSED CONSOLIDATED BALANCE SHEET - JUNE 30, 2003
ASSETS
Current assets:
Cash and cash equivalents $ 1,799
Accounts receivable, less allowance for doubtful
accounts of $4,200 239,880
Inventories 180,990
Prepaid expenses and other current assets 22,508
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Total current assets 445,177
------------
Property and equipment, net 289,310
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Other assets:
Goodwill 42,981
Tradename, net of amortization 82,125
Security deposits 4,714
------------
129,820
------------
$ 864,307
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Cash overdraft $ 16,450
Accounts payable 486,982
Accrued expenses 93,211
Loans payable, officer 144,512
------------
Total current liabilities 741,155
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Other liabilities:
Deferred rent 61,633
Net liabilities of discontinued operations 134,265
------------
195,898
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 and outstanding 5,446,750 shares 5,447
Additional paid in capital 11,346,093
Deficit (11,424,286)
------------
(72,746)
$ 864,307
============
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, 2003 AND 2002
Six Months Three Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
---- ---- ---- ----
Net sales $ 1,479,315 $ 1,455,656 $ 851,279 $ 836,234
Cost of sales 1,300,030 1,206,816 725,532 620,365
----------- ----------- ----------- -----------
Gross profit 179,285 248,840 125,747 215,869
----------- ----------- ----------- -----------
Selling, general and
administrative expenses 377,392 387,748 203,554 232,496
Forgiveness of debt (40,000) (40,000)
Interest expense 3,823 2,283
----------- ----------- ----------- -----------
381,215 347,748 205,837 192 496
----------- ----------- ----------- -----------
Income (loss) from
continuing operations (201,930) (98,908) (80,090) 23,373
Discontinued operations:
Income from operations
of New York facility 1,314 450
----------- ----------- ----------- -----------
Net income (loss) ($ 201,930) ($ 97,594) ($ 80,090) $ 23,823
=========== =========== =========== ===========
Earnings per common share:
Primary and fully diluted:
Loss from continuing
operations ($ 0.04) ($ 0.02) ($ 0.01) $ 0.00)
Discontinued
operations 0.00 0.00 ( 0.00) 0.00
----------- ----------- ----------- -----------
Net income (loss)
per common share ($ 0.04) ($ 0.02) ($ 0.01) $ 0.00)
=========== =========== =========== ===========
Weighted average
number of common
shares outstanding 5,446,750 5,121,750 5,446,750 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, 2003 AND 2002
2003 2002
---- ----
Operating activities:
Loss from continuing operations ($201,930) ($ 98,908)
Adjustments to reconcile loss from
continuing operations to cash used in
continuing operations:
Depreciation and amortization 43,245 64,106
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 (54,603) 86,169
Inventory 9,955 (115,962)
Prepaid expenses and other current assets 41,260 48,089
Accounts payable 27,159 (29,188)
Accrued expenses and other current
liabilities 23,563 (78,292)
Deferred rent (10,967) (10,966)
-------- --------
Net cash used in continuing operations (122,318) (164,432)
Net cash provided by discontinued operations 0 34,000
-------- --------
Net cash used in operating activities (122,318) (130,432)
-------- --------
Investing activities:
Purchase of property and equipment (58,000)
--------
Net cash used in investing activities (58,000)
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Financing activities:
Cash overdraft 16,450 29,859
Officer loans 56,511 40,000
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Net cash provided by financing activities 72,962 69,859
-------- --------
Net decrease in cash and cash equivalents (49,356) (18,573)
Cash and cash equivalents, beginning of period 51,155 121,616
-------- --------
Cash and cash equivalents, end of period $ 1,799 $ 3,043
======== ========
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, 2003 AND 2002
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 six months ended are 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, 2002 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, 2002.
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, and 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 June 30, 2003, the Company had no
uninsured cash balances.
F-5
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
4. Accounts receivable:
Following is a summary of receivables at June 30, 2003:
Trade accounts $ 244,080
Less allowance for doubtful accounts (4,200)
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$ 239,880
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5. Inventories:
Inventories at June 30, 2003 consist of:
Finished goods $ 29,983
Raw materials 58,066
Supplies 92,941
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$ 180,990
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6. Property and equipment:
Baking equipment $1,349,326
Furniture and fixtures 97,978
Leasehold improvements 180,422
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1,627,726
Less: Accumulated depreciation
and amortization 1,338,416
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$ 289,310
==========
Depreciation expense charged to operations was $40,245 and $62,606 in 2003
and 2002, 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:
Tradename rights are being amortized on the straight-line basis over a
fifteen year term. Amortization expense for the six months ended June 30,
2003 was $3,000.
F-6
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
8. 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 expiring in
December 31, 2004.
The minimum future rentals on the baking facility is as follows:
FACILITY
June 30, 2004 $200,000
June 30, 2005 100,000
--------
$300,000
========
Rent expense for all operating leases amounted to $131,127 in 2003 and
$108,145 in 2002.
9. 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 $8,780,450 that may be offset
against future taxable income. The carryforward losses expire at the end of
the years 2006 through 2020.
F-7
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
10. 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:
2003 2002
---- ----
Weighted average of shares actually
outstanding 5,446,750 5,121,750
--------- ---------
Common stock purchase warrants
Primary and fully diluted weighted
average common shares outstanding 5,446,750 5,121,750
========= =========
11. 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.
Total liabilities, less assets to be disposed of, of WGJ Desserts, Inc.
consisted of the following as of June 30, 2003:
Liabilities:
Accounts payable $112,462
Accrued expenses 21,803
--------
134,265
Assets 0
--------
Net liabilities $134,265
========
Information relating to discontinued operations for WGJ Desserts and Cafes,
Inc. for the six months ended June 30, 2003 and 2002 is as follows:
2003 2002
---- ----
Operating expenses $ 0 $ 0
-------- ------
Loss from operations 0 0
Interest income 0 1,314
-------- ------
Income from discontinued operations $ 0 1,314
======== ======
F-8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATIONS
A. General
The process of refining operations and implementing financial and
manufacturing controls continues to be a major priority of management. Emphasis
has been placed in ensuring accurate reporting of financial data and reducing
manufacturing costs.
Sales revenues have increased in the first two quarters of 2003 as
compared the same period for 2002. However, increases in ingredient and
packaging costs have caused a significant increase in the cost of goods sold, as
compared to 2002.
Increased orders and interest from international buyers for cheesecake
and other items are promising. Co-packing opportunities continue to be
developed. Mini Cakes, Cheesecake, and pre-portioned gourmet desserts are the
categories which represent the most potential for sales growth. In addition, the
company is exploring marketing several niche health food items. This includes
but is not limited to low carbohydrate desserts. Marketing efforts continue to
target both food service and retail distributors to carry our product lines.
A proposed new building lease has been agreed to in principle. This will
result in annual savings of over $ 70,000.
At December 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.
B. Results of Operations
The Company's consolidated revenues from continuing operations
aggregated $ 851,279 and $836,234 for the quarters ended June 30, 2003 and 2002
respectively, an increase of 1.8%. The cost of goods sold was $ 725,532 and
$620,365 respectively, an increase of 17%. Operating expenses were $ 203,554 and
$232,496 (as adjusted) respectively, a decrease of 12%. Interest expense was
$2,283 and $0 respectively, an increase of 100%. During the quarter ended June
30, 2002, the Company was forgiven a debt of $40,000. No debts have been
forgiven as of June 30, 2003. As a result, the (loss) income from continuing
operations before other income (expense) was $(80,090) and $ 23,373
respectively, a decrease of 442%. The net (loss) income from continuing
operations for the quarter was $(80,090) and $ 23,823 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, 2003, the Company had a negative working capital from
continuing operations of $295,978 as compared to a negative working capital of $
79,657 at June 30, 2002.
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.
CERTIFICATION PURSUANT TO
THE SARBANES-OXLEY ACT OF 2002
I, Ron Schutte., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Creative Bakeries,
Inc;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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 quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly 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 quarterly 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: August 13, 2003
/s/ Ron Schutte
---------------
Ron Schutte
Chairman and Chief Executive Officer
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 June 30, 2003.
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
June 30, 2003.
Signatures Title
-----
/s/Ron Schutte President, Chief Executive Officer/Director
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Ron Schutte
/s/ Vincent Bucchimuzzo Director
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Vincent Bucchimuzzo
/s/ Richard Fechtor Director
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Richard Fechtor
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/s/ Anthony Merante Director
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Anthony Merante
/s/Karen Brenner Director
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Karen Brenner
/s/Mel Foti Director
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Mel Foti