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, 2003
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, 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 March 31, 2003 F-2
Statement of operations for the three months
ended March 31, 2003 and 2002 F-3
Statement of cash flows for the three months
ended March 31, 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 - MARCH 31, 2003
ASSETS
Current assets:
Cash and cash equivalents $ 1,256
Accounts receivable, less allowance for doubtful
accounts of $4,200 179,266
Inventories 180,081
Prepaid expenses and other current assets 42,469
------------
Total current assets 403,072
------------
Property and equipment, net 309,432
------------
Other assets:
Goodwill 42,981
Tradename, net of amortization 83,625
Security deposits 4,714
------------
131,320
------------
$ 843,824
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 57,794
Accounts payable 427,850
Accrued expenses 61,454
Loans payable, officer 88,000
------------
Total current liabilities 635,098
------------
Other liabilities:
Deferred rent 67,117
Net liabilities of discontinued operations 134,265
------------
201,382
------------
Stockholders' equity:
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 (11,344,196)
------------
7,344
------------
$ 843,824
============
See notes to condensed consolidated financial statements.
F-2
CREATIVE BAKERIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
2003 2002
---------- ----------
Net sales $ 628,036 $ 619,422
Cost of sales 574,498 586,451
---------- ----------
Gross profit 53,538 32,971
Selling, general and administrative expenses 173,838 155,252
---------- ----------
Loss from continuing operations before
interest expense (120,300) (122,281)
Interest expense 1,540
---------- ----------
Loss from continuing operations (121,840) (122,281)
Discontinued operations:
Income from disposal of New York facility 864
---------- ----------
Net loss ($121,840) ($121,417)
========== ==========
Earnings per common share:
Primary and fully diluted:
Loss from continuing operations ($0.02) ($0.02)
Discontinued operations 0.00 0.00
---------- ----------
Net loss per common share ($0.02) ($0.02)
========== ==========
Weighted average number of common
shares outstanding 5,446,750 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, 2003 AND 2002
2003 2002
---------- ----------
Operating activities:
Loss from continuing operations ($121,840) ($122,281)
Adjustments to reconcile loss from continuing operations to cash
used in continuing operations:
Depreciation and amortization 21,623 31,563
Common stock issued for services 6,250
Changes in other operating assets and liabilities from
continuing operations:
Accounts receivable 6,011 82,173
Inventory 10,864 (19,006)
Prepaid expenses and other current assets 21,299 28,334
Accounts payable (31,973) (49,406)
Accrued expenses and other current liabilities (8,194) (69,312)
Deferred rent (5,483) (5,483)
---------- ----------
Net cash used in continuing operations (107,693) (117,168)
Net cash provided by discontinued operations 0 0
---------- ----------
Net cash used in operating activities (107,693) (117,168)
---------- ----------
Financing activities:
Cash overdraft 57,794
----------
Net cash provided by financing activities 57,794
Net decrease in cash and cash equivalents (49,899) (117,168)
Cash and cash equivalents, beginning of period 51,155 121,616
---------- ----------
Cash and cash equivalents, end of period $ 1,256 $ 4,448
========== ==========
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, 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 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, 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, 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, 2003, the Company had no
uninsured cash balances.
F-5
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
4. Accounts receivable:
Following is a summary of receivables at March 31, 2003:
Trade accounts $183,466
Less allowance for doubtful accounts (4,200)
--------
$179,266
========
5. Inventories:
Inventories at March 31, 2003 consist of:
Finished goods $ 27,017
Raw materials 74,660
Supplies 78,404
--------
$180,081
========
6. Property and equipment:
Baking equipment $1,349,326
Furniture and fixtures 97,978
Leasehold improvements 180,422
----------
1,627,726
Less: Accumulated depreciation
and amortization 1,318,294
----------
$ 309,432
==========
Depreciation expense charged to operations was $20,123 and $31,188 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 three months ended March
31, 2003 was $1,500.
F-6
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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 commencing
January 31, 1994 and expiring December 31, 2004.
The minimum future rentals on the baking facility is as follows:
Facility
--------
March 31, 2004 $200,000
March 31, 2005 150,000
--------
$350,000
========
Rent expense for all operating leases amounted to $57,438 in 2003 and
$55,874 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
THREE MONTHS ENDED MARCH 31, 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 5,245,250
--------- ---------
Common stock purchase warrants
Primary and fully diluted weighted
average common shares outstanding 5,446,750 5,245,250
========= =========
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 March 31, 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 three months ended March 31, 2003 and 2002 is as follows:
2003 2002
---- ----
Operating expenses $0 $ 0
-- ----
Loss from operations 0 0
Interest income 0 864
-- ----
Income from discontinued operations $0 $864
== ====
F-8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATIONS
A. General
Refinement of operations and implementation of financial and manufacturing
controls continues to be a major priority of management. Emphasis has been
placed in ensuring accurate reporting of financial data.
Sales revenues increased slightly in the first quarter of 2003 as compared
the same period for 2002. A 2% decrease in the cost of goods sold has resulted
in increasing the gross margin percentage by 3.5%.
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.
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
$628,036 and $619,422 for the quarters ended March 31, 2003 and 2002
respectively, an increase of 1%. The cost of goods sold was $ 574,498 and
$586,451 respectively, a decrease of 2%. Operating expenses were $ 173,838 and
$155,252 respectively, an increase of 12%. As a result, the loss from continuing
operations before other income (expense) was $120,300 and $ 122,281
respectively, a decrease of less than 1%. The net loss from continuing
operations for the quarter was $121,840 and $ 122,281 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 March 31, 2003, the Company had a negative working capital during the
first quarter from continuing operations of $232,036 as compared to a negative
working capital of $ 155,359 during the first quarter of 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.
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 14, 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
May 14, 2003.
Signatures Title
-----
/s/Ron Schutte President, Chief Executive Officer/Director
--------------------------------
Ron Schutte
/s/ Vincent Bucchimuzzo Director
--------------------------------
Vincent Bucchimuzzo
/s/ Richard Fechtor Director
--------------------------------
Richard Fechtor
/s/ Anthony Merante Director
--------------------------------
Anthony Merante
/s/Karen Brenner Director
--------------------------------
Karen Brenner
/s/Mel Foti Director
--------------------------------
Mel Foti
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: May 14, 2003
/s/ Ron Schutte
---------------
Ron Schutte
Chairman and Chief Executive Officer