UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
|X| Quarterly Report Pursuant To Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 2006
OR
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to _______
Commission File Number 1-13984
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC.
(Formerly Creative Bakeries, Inc.)
(Exact name of Registrant as specified in its Charter)
New York 13-3832215
-------- ----------
(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)
(973) 808-9292
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(Registrant's telephone number, including area code)
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 by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.
Yes |_| No |X|
As of May 22, 2006, there were 684,445 shares of the registrant's common stock,
par value $0.025 per share, outstanding.
Transition Small Business Disclosure Format (check one) Yes |_| No |X|
THIS REPORT WAS NOT REVIEWED DUE TO MISSING INFORMATION.
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC.
(FORMERLY CREATIVE BAKERIES, INC.)
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Condensed financial statements:
Balance sheet as of March 31, 2006(unaudited) F-1
Statements of operations for the three
months ended March 31, 2006 and 2005 (unaudited) F-2
Statements of cash flows for the three months
ended March 31, 2006 and 2005 (unaudited) F-3
Notes to condensed financial Statements F-4 - F-9
Item 2. Management's discussion and analysis or
Plan of Operations 3
Item 3. Controls and Procedures 4
PART II. OTHER INFORMATION
Item 2. Unregistered sales of equity securities and
use of proceeds 4
Item 6. Exhibits and reports on Form 8K 5
SIGNATURES 6
CERTIFICATIONS
PART I. FINANCIAL INFORMATION
Item 1. Condensed financial statements
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC.
(FORMERLY CREATIVE BAKERIES, INC.)
CONDENSED CONSOLIDATED BALANCE SHEET - MARCH 31, 2006
(UNAUDITED)
ASSETS
Current assets:
Prepaid expenses $ 16,240
--------------
Total current assets 16,240
--------------
Other assets:
Tradename, net of amortization 65,625
--------------
Total other assets 65,625
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$ 81,865
==============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accrued expenses $ 3,000
Notes payable 815,000
--------------
Total current liabilities 818,000
--------------
Stockholders' deficiency:
Preferred stock $.001 par value, authorized 2,000,000
shares, none issued
Common stock, $.025 par value, authorized 30,000,000
shares, issued and outstanding 684,445 shares 17,110
Additional paid in capital 12,245,830
Accumulated deficit (12,999,075)
--------------
(736,135)
--------------
Total stockholders' deficiency $ 81,865
==============
See notes to condensed consolidated financial statements.
F-1
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC.
(FORMERLY CREATIVE BAKERIES, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2006
(UNAUDTIED)
2006 2005
------------ ------------
Net sales $ -- $ --
Cost of sales -- --
------------ ------------
Gross profit -- --
------------ ------------
Selling, general and
administrative expenses 145,024 39,228
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145,024 39,228
------------ ------------
Loss from Continuing Operations $ (145,024) $ (39,228)
------------ ------------
Discontinued operations
Loss from discontinued operations (2,676,899) (302,060)
------------ ------------
Net (loss) (2,821,923) (341,288)
============ ============
Net loss per common share:
Primary and fully diluted:
Continuing Operations $ (0.23) $ (0.09)
============ ============
Discontinued Operations $ (4.36) $ (0.71)
============ ============
Weighted average number of
common shares outstanding 612,729 423,412
============ ============
See notes to condensed consolidated financial statements.
F-2
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC.
(FORMERLY CREATIVE BAKERIES, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2006
(UNAUDITED)
2006 2005
------------ ------------
Operating activities:
Loss from continuing operations $ (145,024) $ (39,228)
Adjustments to reconcile net loss from
operations to cash used in
operating activities:
Changes in discontinued operations
Depreciation and amortization 1,500 21,337
Common stock issued for services 179,271 157,000
Loss from discontinued operations (347,014) (302,060)
Changes in discontinued assets and
liabilities:
Accounts receivable 103,865 146,503
Inventories 200,328 (38,064)
Prepaid expenses 16,965 7,131
Website development 112,103 --
Financing costs 2,342 --
Security deposit 6,242 (477)
Accounts payable (548,447) (34,028)
Accrued expenses (86,310) 8,900
Deferred rent (25,040) 2,340
------------ ------------
Net cash used in operating activities (709,219) (70,646)
------------ ------------
Investing activities:
Purchase of property and equipment -- (19,000)
Gain on Sale of Subsidiary Stock 675,263 --
Sale of Property & Equipment 268,352 --
------------ ------------
Net cash provided by (used in) investing activities 943,615 (19,000)
------------ ------------
Financing activities:
Proceeds from note payable 15,000 44,976
Proceeds from capital lease obligation -- 10,663
Principal payments of notes payable (208,241) --
Principal payments of capital lease obligations (48,599) --
Net cash provided by financing activities (241,840) 55,639
------------ ------------
Net decrease in cash and cash equivalents (7,444) (32,671)
Cash and cash equivalents, beginning of period 7,444 35,225
------------ ------------
Cash and cash equivalents, end of period $ -- $ 2,554
============ ============
Supplemental disclosures:
Cash paid during the year for:
Taxes: $ -- $ --
Interest: $ -- $ 5,220
============ ============
Non cash transactions affecting investing
and financing:
Issuance of restricted common shares for debt $ -- $ 81,034
============ ============
See notes to condensed consolidated financial statements.
F-3
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC.
(FORMERLY CREATIVE BAKERIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
1. Basis of presentation:
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. 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, 2005 included in its Annual Report filed on Form
10-KSB.
2. Nature of operations, risks and uncertainties:
The Company was formerly a manufacturer of baking and confectionery
products, which were sold to supermarkets, food distributors, educational
institutions, restaurants, mail order and to the public. The Company sold
its products throughout the United States, with a concentration in the
East Coast. The Company also exported cheesecake to Japan.
On March 28, 2006, the Company entered into an asset exchange agreement,
tenant's lease assignment, and exclusive licensing agreement with the
Company's former Chairman, Chief Executive Officer, and President, Ronald
Schutte, whereby the Company exchanged certain assets of its operating
subsidiary JM Specialties, Inc. for the assumption of $1,145,315 in
liabilities of the Company by an entity established by Mr. Schutte with a
personal guarantee by Mr. Schutte. As part of the agreement, Mr. Schutte
also acquired the stock of JM Specialties, Inc. stock. The transaction had
been subject to a satisfactory fairness opinion. Following the exchange
transaction, the Company business operations changed from the
manufacturing of baking and confectionary products to a licensing company
of intellectual property.
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, 2006, the Company had no
uninsured cash balances.
3. Tradename and licensing agreements:
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. Amortization expense was $1,500 for each
of the quarters ended March 31, 2006 and 2005.
On March 28, 2006 the Company entered into a licensing agreement with its
former Chairman and CEO, whereby a one percent of sales fee would be
charged for the use of the Brooklyn Cheesecake & Desserts Company, Inc.
trademarks. No income was reported for the last three days of this
quarter.
F-4
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC.
(FORMERLY CREATIVE BAKERIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
3. Tradename and licensing agreements (continued):
The following is a schedule of future amortizations on the trade name:
2007 $ 6,000
2008 6,000
2009 6,000
2010 6,000
2011 6,000
Thereafter 35,625
----------
$ 65,625
==========
4. Notes payable:
Note dated January 31, 2006 payable to Ronald L. Schutte the former
Chairman and CEO payable on demand and secured by the company's
trademarks. The original amount of the loan was $ 995, 818 of which
$195,818 plus additional loans and accrued interest was satisfied upon
completion of an exchange agreement dated March 28, 2006 (see note 8.) Mr.
Schutte also advanced $15,000 to cover additional expense during the
period.
5. Common Stock:
The following restricted common stock issuances were made in the quarter
ended March 31, 2006:
- The Company issued 28,000 shares of common stock for services valued
at $35,000. The shares were issued to officers of the Company,
valued at $35,000, or $1.25 per share, on February 17, 2006, the
closing trading price on the date of issuance.
- The Company issued 9,017 shares of common stock for merchandise
purchased valued at $11,271. The shares were issued to a vendor,
valued at $11,271, or $1.25 per share, on February 17, 2006 the
closing trading price on the date of issuance.
- In payment of fees to Company Board members and Corporate Secretary,
the Company issued 64,000 shares of common stock, valued at $80,000.
The shares were issued to the directors and corporate secretary,
valued at $80,000, or $1.25 per share, on February 17, 2006 the
closing trading price on the date of issuance.
- In payment of fees to Consultants, the Company issued 30,000 shares
of common stock, valued at $37,500. The shares were issued to the
consultants, valued at $37,500, or $1.25 per share, on February 17,
2006 the closing trading price on the date of issuance.
- In payment of salaries to employees, the Company issued 12,400
shares of common stock, valued at $15,500. The shares were issued to
the employees, valued at $15,500, or $1.25 per share, on February
17, 2006 the closing trading price on the date of issuance.
The issuance of the common stock was exempt from registration pursuant to
Section 4(2) of The Securities Act of 1933, as amended.
F-5
BROOKLYN CHEESECAKE & DESSERTS COMPANY, INC.
(FORMERLY CREATIVE BAKERIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
6. 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 $11,146,700 that may be offset
against future taxable income. The carryforward losses expire at the end
of the years 2006 through 2025.
7. Exchange Agreement:
On March 28, 2006 the Company entered into an exchange agreement with the
Ronald L. Schutte the former Chairman and CEO whereby the Company
exchanged certain assets in exchange for all liabilities of the company
and a portion of the secured debt due to Mr. Schutte. The balance of Mr.
Schutte's debt will be extinguished upon the Company raising additional
capital. The Company also entered into an exclusive licensing agreement
with Mr. Schutte and a company owned by Mr. Schutte whereby, the Company
receives one percent of net sales as a royalty for use of the Company's
trademarks. Mr. Schutte also acquired the stock of the Company's J.M.
Specialty, Inc. subsidiary.
8. Discontinued Operations:
The Company's sale of its Distribution License has been accounted for
under the requirements of paragraph 30 of Statements of Financial
Accounting Standards 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets."
F-6
Item 2. Managements Discussion and Analysis or Plan of Operations
Overview
On March 28, 2006 the Company exchanged its baking assets for debt and
liabilities with its former Chairman and CEO. In addition the company entered
into a licensing agreement, whereby it has licensed certain intellectual
property, namely trademarks. The licensing fees derived from the license
agreement, if any, will be used to offset operating costs.
Results of Operations
Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005
The operating company revenue from operations, cost of goods sold and
operating expenses for the three months ended March 31, 2006 and 2005 have been
reclassified to discontinued operations.
Selling, general and administrative expenses totaled $145,024 and $39,228
for the three months ended March 31, 2006 and 2005. This was an increase of
$105,796 or 270%. This was a result of increased legal, professional and
directors' fees. Most of these fees were paid in common stock.
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 March 31, 2006, the Company had a negative working capital from
continuing operations of $801,760 as compared to a negative working capital of
$899,385 at March 31, 2005.
3
Item 3. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form
10-QSB, 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 quarter
ended March 31, 2006.
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.
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and use of Proceeds
The following restricted common stock issuances were made in the quarter ended
March 31, 2006:
- The Company issued 28,000 shares of common stock for services valued
at $35,000. The shares were issued to officers of the Company,
valued at $35,000, or $1.25 per share, on February 17, 2006, the
closing trading price on the date of issuance.
- The Company issued 9,017 shares of common stock for merchandise
purchased valued at $11,271. The shares were issued to a vendor,
valued at $11,271, or $1.25 per share, on February 17, 2006 the
closing trading price on the date of issuance.
- In payment of fees to Company Board members and Corporate Secretary,
the Company issued 64,000 shares of common stock, valued at $80,000.
The shares were issued to the directors and corporate secretary,
valued at $80,000, or $1.25 per share, on February 17, 2006 the
closing trading price on the date of issuance.
- In payment of fees to Consultants, the Company issued 30,000 shares
of common stock, valued at $37,500. The shares were issued to the
consultants, valued at $37,500, or $1.25 per share, on February 17,
2006 the closing trading price on the date of issuance.
- In payment of salaries to employees, the Company issued 12,400
shares of common stock, valued at $15,500. The shares were issued to
the employees, valued at $15,500, or $1.25 per share, on February
17, 2006 the closing trading price on the date of issuance.
The issuance of the common stock was exempt from registration pursuant to
Section 4(2) of The Securities Act of 1933, as amended.
4
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of President and Chief Executive Officer pursuant to
Section 302 of 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.
(b) Reports on Form 8-K
On January 12, 2006, the Company filed a current report on Form 8-K
reporting the entering into a non-binding letter of intent to exchange assets
for debt owed to the former Chairman and Chief Executive Officer Ronald L.
Schutte.
On February 3, 2006, the Company filed a current report on Form 8-K
reporting the issuance of notes consolidating loans from Ronald L. Schutte, the
Company's former Chairman and Chief Executive Officer into one $995,818 note, as
well as, the consolidation of various notes from Anthony J. Merante, the current
Chairman and Chief Executive Officer into one $187,086 note.
On March 22, 2006, the Company filed a current report on Form 8-K
reporting an amendment to the Company's Certificate of Incorporation
effectuating a reverse split of the issued and outstanding shares of common
stock of the Company at a ratio of 1:25.
On March 29, 2006, the Company filed a current report on Form 8-K
reporting the resignation of Ronald L. Schutte and the appointment of Anthony J.
Merante as Chairman and Chief Executive Officer.
On March 31, 2006, the Company filed a current report on Form 8-K
reporting the exchange agreement entered into between Ronald L. Schutte the
Company's former Chairman and Chief Executive Officer whereby certain assets
were exchanged for debts due to Mr. Schutte and other liabilities of the
Company.
5
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 22, 2006.
Brooklyn Cheesecake & Desserts Company, Inc.
/s/ Anthony J. Merante
----------------------------------
Anthony J. Merante
President, Chief Executive Officer, and Chief Financial Officer
6