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
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Commission File Number: 1-13984
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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