<PAGE>
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, 1999
--------------
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)
<TABLE>
<S> <C> <C>
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.
</TABLE>
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.
<TABLE>
<CAPTION>
Class Outstanding at June 30, 1999
- --------------------- ----------------------------
<S> <C>
Common Stock, par value $0.001
per share 5,120,750
</TABLE>
<PAGE>
INDEX
<TABLE>
<S> <C> <C>
Part I. Financial information
Item 1. Condensed consolidated financial statements:
Balance sheet as of June 30, 1999 F-2
Statement of operations for the six and three
months ended June 30, 1999 and 1998 F-3
Statement of cash flows for the six months
ended June 30, 1999 and 1998 F-4
Notes to condensed consolidated financial
statements F-5 - F-13
Item 2. Management's discussion and analysis of
financial condition
Item 3. Legal proceedings
Part II. Other information
Signatures
</TABLE>
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET - JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 209,352
Accounts receivable, less allowance for doubtful
accounts of $16,000 395,748
Loans receivable 22,595
Inventories 180,277
Prepaid expenses and other current assets 42,412
-----------
Total current assets 850,384
-----------
Property and equipment, net 680,398
-----------
Other assets:
Goodwill, net of amortization 930,397
Security deposits 5,464
-----------
935,861
-----------
$ 2,466,643
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ 18,572
Notes payable, bank 145,241
Loans payable, other 29,042
Accounts payable 532,333
Payroll taxes payable 74,082
Accrued expenses 250,864
-----------
Total current liabilities 1,050,134
-----------
Other liabilities:
Deferred rent 144,491
Net liabilities of discontinued operations less
assets to be disposed of 527,380
-----------
671,871
-----------
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 5,305,250 shares 5,305
Additional paid in capital 11,505,697
Deficit (10,518,995)
-----------
992,007
Common stock held in treasury, 184,500 shares (247,369)
-----------
744,638
-----------
$ 2,466,643
===========
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX AND THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30,
------------------------------ -----------------------------
1998 1998
1999 Restated 1999 Restated
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $2,036,252 $1,959,341 $1,128,817 $ 955,580
Cost of sales 1,611,200 1,646,774 892,486 795,390
----------- ---------- ----------- ----------
Gross profit 425,052 312,567 236,331 160,190
Selling, general and administrative
expenses 529,842 614,680 232,736 256,616
----------- ---------- ----------- ----------
Income (loss) from continuing
operations (104,790) (302,113) 3,595 (96,426)
----------- ---------- ----------- ----------
Other income (expenses):
Sale of marketable securities 3,216
Miscellaneous income 42,345 34,180 6,213 34,180
Interest income 4,248 6,961 2,171 2,823
Interest expense (5,629) (18,829) (3,422) (5,851)
----------- ---------- ----------- ----------
44,180 22,312 4,962 31,152
----------- ---------- ----------- ----------
Income (loss) from continuing
operations (60,610) (279,801) 8,557 (65,274)
Discontinued operations:
Income (loss) from operations of
New York facility to be disposed of 23,815 (282,211) 53,537 (69,492)
----------- ---------- ----------- ----------
Net income (loss) ($36,795) ($562,012) $62,094 ($134,766)
=========== ========== =========== ==========
Earnings per common share:
Primary and fully diluted:
Income (loss) on continuing
operations ($0.01) ($0.05) $0.00 ($0.01)
Income (loss) from discontinued
operations $0.00 (0.05) 0.01 (0.01)
----------- ---------- ----------- ----------
Net income (loss) per common share ($0.01) ($0.10) $0.01 ($0.02)
=========== ========== =========== ==========
Weighted average number of common
shares outstanding 5,241,360 5,173,352 5,304,508 5,184,826
=========== ========== =========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1998
1999 Restated
---------- ------------
<S> <C> <C>
Operating activities:
Loss from continuing operations ($60,610) ($279,801)
Adjustments to reconcile income from
continuing operations to cash provided from
continuing operations:
Depreciation 58,045 87,321
Amortization 40,456 40,456
Compensatory element of issuance of warrants 1,023
Gain on sale of marketable securities 3,216
Changes in other operating assets and liabilities
from continuing operations:
Accounts receivable (133,272) 73,741
Inventory 55,315 89,236
Prepaid expenses and other current assets 6,810 (98,038)
Security deposits 17,871
Accounts payable 8,760 14,273
Accrued expenses and other current liabilities 77,229 (84,027)
Deferred rent (6,847) (18,519)
-------- --------
Net cash provided by (used in) operating
activities 49,102 (156,464)
Net cash used in discontinued operations (125,686) (49,797)
-------- --------
Net cash used in operating activities (76,584) (206,261)
-------- --------
Investing activities:
Proceeds from sale of marketable securities 4,533
Purchase of property and equipment (16,229) (10,598)
-------- --------
Net cash used in investing activities (11,696) (10,598)
-------- --------
Financing activities:
Proceeds from issuance of common stock and
warrants 187,500 112,000
Payment of debt (19,494) (64,059)
-------- --------
Net cash provided by financing activities 168,006 47,941
-------- --------
Net increase (decrease) in cash and cash
equivalents 79,726 (168,918)
Cash and cash equivalents, beginning of period 129,626 479,312
-------- --------
Cash and cash equivalents, end of period $209,352 $310,394
======== ========
Supplemental disclosures:
Cash paid during the period:
Interest paid during the period
Continuing operations $ 5,629 $ 18,348
======== ========
Discontinued operations $ 0 $ 0
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 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, 1998 included in
its Annual Report filed on Form 10-KSB.
2. Organization of the Company:
On January 23, 1997, the Company purchased 100% of the outstanding common
stock of J.M. Specialties, Inc. ("JMS") in a transaction to be accounted
for as a purchase (the "Acquisition"). The purchase price of $2,160,000
consisted of (i) $900,000 in cash, (ii) 500,000 shares of the Company's
common stock valued at fair market value of $1.75 per share (aggregating
$875,000), and (iii) 350,000 purchase warrants valued at fair value of
$1.10 per warrant (aggregating $385,000) to acquire 350,000 shares of the
Company's common stock at $2.50 per share. The warrants are in the same
form as those described below.
JMS, which was founded in 1984, offers a line of both batter and frozen
finished cakes, brownies and muffins - with muffins constituting
approximately 90% of sales. These products are produced in batches using
partially automated equipment at its facility in Parsippany, New Jersey.
The product is sold to wholesale customers as well as supermarket
distribution centers and is marketed primarily through food distribution
companies in New Jersey and New York. In turn, according to JMS's
management, the distributor sells approximately forty percent of the
product to supermarkets and sixty percent to food service customers, such
as hospitals, colleges, restaurants and corporate dining rooms.
On September 1, 1997, the Company acquired 100% of the outstanding common
shares of Chatterly Elegant Desserts, Inc. (Chatterly) in a transaction to
be accounted for as a pooling of interest. The Company issued 1,300,000 of
its common shares pursuant to the acquisition, of which 200,000 shares were
returned to the Company on March 10, 1998 when the seller's sales agreement
was amended.
Chatterly, which was founded in 1985, produces a line of cakes, tortes and
other dessert items which are made in its facility in Fairfield, New
Jersey. The products are sold to wholesale customers as well as
supermarkets and other food distributors in New Jersey and New York.
F-5
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Summary of significant accounting policies:
Principles of consolidation:
The consolidated financial statements of Creative Bakeries, Inc. and
subsidiaries include the accounts of all significant wholly owned
subsidiaries, after elimination of all significant intercompany
transactions and accounts. Financial statements have been restated as of
June 30, 1998 to reflect the discontinuation of the operations of WGJ
Desserts, Inc. (see Note 15)
Cash and cash equivalents:
Cash and cash equivalents include all highly liquid investments with an
original maturity of three months or less.
Inventories:
Inventories are stated at the lower of cost or market. Market is
considered at net realizable value.
Per share amounts:
Net earnings per share are calculated by dividing net earnings by the
weighted average shares of common stock of the Company and weighted
average of common stock equivalents outstanding for the period. Common
stock equivalents represent the dilutive effect of the assumed
exercise of certain outstanding stock options. The Company uses the
treasury stock method in its treatment of stock options.
Property and equipment:
Property and equipment are stated at cost. Depreciation of property and
equipment is provided using the straight-line method over the following
useful lives.
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Manufacturing 5-20
Furniture and fixtures 7-20
Other equipment 5-14
Buildings and improvements 10-50
Automotive equipment 5
</TABLE>
Expenditures for major renewals and betterment that extend the useful lives
of property and equipment are capitalized. Expenditures for maintenance and
repairs are charged to expense as incurred.
Income taxes:
The Company has elected to file a consolidated corporate income tax
return with its subsidiaries. For tax reporting purposes, the Company
uses certain accelerated depreciation methods which may create
timing differences between book and tax income. Deferred income taxes
will be reflected for these timing differences.
F-6
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Summary of significant accounting policies (continued):
Deferred taxation:
Provision is made by the liability method for taxation deferred in
respect of all timing differences. Deferred tax benefit is recognized
only when there is reasonable assurance of realization.
Allowance for doubtful accounts:
An allowance for doubtful accounts has been established based on
management's review of the outstanding accounts receivable balance and
their determination of possible uncollectible accounts.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
4. Inventories:
Inventories consist of the following:
<TABLE>
<S> <C>
Raw materials $ 65,765
Finished goods 49,360
Packaging supplies,
labels, etc. 65,152
--------
$180,277
========
</TABLE>
5. Note receivable:
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:
<TABLE>
<S> <C>
June 30, 2000 $ 73,750
June 30, 2001 73,750
June 30, 2002 73,750
June 30, 2003 36,875
--------
$258,125
========
</TABLE>
F-7
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Note receivable (continued):
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.
6. Property and equipment:
The following is a summary of property and equipment at June 30, 1999:
<TABLE>
<S> <C>
Baking equipment $1,443,028
Furniture and fixtures 78,864
Leasehold improvements 180,422
----------
1,702,314
Less: Accumulated depreciation
and amortization 1,021,916
----------
$ 680,398
==========
</TABLE>
7. Intangible assets:
The excess cost over the fair value of the net assets acquired from J.M.
Specialties, Inc. aggregated $1,213,565. This goodwill has been
amortized over its estimated useful life of fifteen years.
Amortization charged to operations amounted to $40,456 in 1999 and
1998.
8. Deferred rent:
The accompanying financial statements reflect rent expense on a straight-
line basis over the life of the lease. Rent expense charged to
operations differs with the cash payments required under the terms of
the real property operating leases because of scheduled rent payment
increases throughout the term of the leases. The deferred rent
liability is the result of recognizing rental expense as required by
generally accepted accounting principles.
F-8
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Common stock:
In January 1999, the Company issued 150,000 of its common stock at $1.25
for total proceeds of $187,500.
In January 1999, the Company issued 40,000 of its common shares in lieu
of payment of a note amounting to $100,000 held by a former
shareholder.
In May 1999, the Company issued 13,500 of its common shares in lieu of
payment of compensation amounting to $11,812 to a former director.
10. Notes payable:
Equipment with a cost of $197,000 has been pledged as collateral on a note
payable in monthly installments of $2,909, including interest. The
notes carry interest varying rates of 10.30% to 17.87% and mature
between 1998 and 2000.
The total future annual payments as of June 30, 1999 are as follows:
<TABLE>
<S> <C>
June 30, 1999 $18,572
=======
</TABLE>
11. Commitments and contingencies:
J.M. Specialties:
In connection with the Acquisition, the Company entered into an
employment agreement with the selling shareholder pursuant to which he
will serve as a director and chief executive officer of the Company at an
annual salary level of $250,000 for 1997 and a minimum of $150,000
thereafter. In addition, the Company agreed to provide $600,000 to JMS
for working capital.
In order to finance the Acquisition, the Company sold in a private
placement 1,875,500 common stock purchase warrants ("the Placement
Warrants") at a net price to the Company (after expenses of $315,000) of
$1,747,500. Each Placement Warrant entitles the holder thereof to
purchase one common share, par value $.001 per share, of the common
stock of the Company at an exercise price per share of $2.50 for a
term which will expire on December 31, 2000.
The Company has the right to redeem the Placement Warrants, in
installments, at a redemption price of $.10 per warrant commencing six
months after the date of issuance if the stock trades at a designated
level for at least five trading days prior to the month preceding the
date on which the redemption right may be exercised.
F-9
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11. Commitments and contingencies (continued):
The holders of the Placement Warrants have a put option pursuant to
which for a 60 day period prior to their expiration date, the holder
has the right to require the Company to repurchase the Placement
Warrants for a consideration consisting of $.10 per warrant plus 40% of
a share of common stock. In addition, the Placement Warrants have
standard anti-dilution protection.
Under the terms of its agreement with InterEquity Capital Partners, L.P.,
the Company reserved 185,682 shares of its common stock for issuance
under the warrant. Management ascribed a fair value of $1.10 per common
share.
Chatterly Elegant Desserts, Inc.:
In connection with the acquisition of Chatterly Elegant Desserts, Inc.,
the Company entered into an agreement with the selling shareholder for
a two year period commencing September 1, 1997. The agreement calls
for an annual salary of $100,000 to be paid to such shareholder.
Litigation matters:
The Company and its subsidiary, WGJ Desserts, Inc., have been named as
defendants in an action entitled Bacal v Creative Bakeries, Inc. which
was filed in the Supreme Court of the State of New York for the County of
New York. The complaint in the action alleges that defendants Edmund
Abramson, currently a director of the Company and Willa Abramson,
who resigned as a director in 1996, allegedly acting on behalf of the
Company and Greenberg, entered into an agreement with plaintiff, Murray
Bacal, whereby Mr. Bacal would purchase warrants for common stock of
the Company and that the Abramson's agreed to repurchase the warrants for
the same price at which they were originally sold to him, plus out of
pocket expenses. As a consequence, the complaint seeks $131,500 in
compensatory damages and $1,000,000 in punitive damages. On December 14,
1998, the Company moved by order to show cause to dismiss the complaint in
its entirety as against the Company based on the fact that the action
involves a private transaction between the plaintiff and the Abramson's,
and the complaint fails to state a cause of action against Creative
Bakeries, Inc. After a full briefing and oral argument, the papers were
taken by the court on submission and the Company is awaiting a ruling on
that motion. On summary judgement, the case was dismissed against the
company.
The Company has also been named as a defendant in an action entitled
Ackerman v Alan Sloan, an adversary proceeding brought in the United
States Bankruptcy Court by the Chapter 7 trustee of Alliotto Bakery
Cafe, Inc. The complaint alleges that the Company, while operating as
William Greenberg, Jr. Desserts and Cafes, Inc. used customer lists and
property of the Chapter 7 debtor for a period of several weeks sometime
after June 1998 without having paid fair value or consideration.
While the Company does not believe it committed any actionable conduct,
the Company does not believe the claim is material because it is believed
to involve a potential exposure of only several thousand dollars. The
Company has not yet filed a formal response to the claim.
F-10
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12. Earnings per share:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Weighted average of shares actually
outstanding 5,271,360 5,173,352
Common stock purchase warrants
--------- ---------
Primary and fully diluted weighted
average common shares outstanding 5,271,360 5,173,352
========= =========
</TABLE>
The conversion of the common stock warrants was not assumed as the effect
would be anti-dilutive.
13. Supplemental schedule of non-cash investing and financing activities:
<TABLE>
<CAPTION>
1999 1998
-------- ------
<S> <C> <C>
Common shares issued in consideration
of legal, consulting fees and other
obligations $111,812
-------- --------
$111,812 $ 0
======== ========
</TABLE>
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.
The sale of the final retail location resulted in a selling price of
$405,000 which includes a note receivable of $295,000. The sale
resulted in a gain of $321,350.
F-11
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14. Discontinued operations (continued):
Net liabilities, less assets to be disposed of, of WGJ Desserts, Inc.
consisted of the following as of June 30, 1999:
<TABLE>
<S> <C>
Accounts payable $283,713
Accrued payroll 303,084
Accrued expenses 249,354
Deferred rent 40,954
--------
877,105
--------
Notes receivable 260,125
Interest receivable 5,102
Property and equipment 35,000
Covenant not to compete 25,000
Security deposits 24,498
--------
349,725
--------
$527,380
========
</TABLE>
Information relating to discontinued operations for WGJ Desserts and Cafes,
Inc. for the six months ended June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net sales $705,410
Cost of sales 367,979
--------
Gross profit 337,431
Operating expenses $66,181 476,465
------- --------
Loss from operations (66,181) (139,034)
Loss on abandonment of leasehold
improvements 143,177
Settlement income 79,065
Interest income 10,931
------- --------
Net income (loss) from discontinued
operations $23,815 ($282,211)
======= ========
</TABLE>
F-12
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15. Other matters:
The year 2000 issue relates to the inability of many electronic data
processing (EDP) systems to accurately process year-date data beyond the
year 1999. Unless year 2000 problems are remedied, significant
problems relating to the integrity of all electronically processed
information based on time will occur.
Additionally, there are many other operational issues that need to be
assessed, such as computer-run maintenance systems, as well as systems
that may be indirectly controlled by computer by way of a chip
embedded in their designs.
The effect, if any, at this time about the problems that could occur and
the costs to remedy can not be determined.
F-13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Plan of
Operation
General:
Our plan for restructuring the company is well under way. The commissary along
with unprofitable retail stores have been closed. In November 1998 the Company
sold its remaining retail store on Madison Ave., thus completing its
exit from direct involvement in retailing.
The buyer purchased:
1. The Madison Avenue Store
2. The license to open additional stores from which the Company stands to earn
royalty and
3. A 50% stake in the wholesale and mail order business.
Plans call for leveraging the William Greenberg brand through licensing
agreements and expanding the Batter Bake-Chatterley wholesale business by
penetrating new areas and introducing new products.
At June 30, 1999 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 $7,100,000 which can be used to reduce the tax on income up to
that amount through the year 2011.
b. Results of Operations (continuing) for three months ending June 30, 1999 vs.
three months ended June 30, 1998:
The Company's consolidated revenues aggregated $1,128,817 in the 2nd quarter
1999 vs. $955,580 in the second quarter 1998. The cost of goods sold was
$892,486 vs. $795,390. Operating expenses were $232,736 vs. $256,616. As a
result, the gain from operations for the 2nd quarter 1999 was $3,595 vs. a loss
in the 2nd quarter of 1998 of $96,426. The turnaround from net operating loss to
net operating gain was due to better margins and lower operating expenses.
The net interest expense for the 2nd quarter was $3,422. The resulting net gain
aggregated $62,094 for 2nd quarter 1999 or $.01 per share vs. a net loss of
$65,274 for the 2nd quarter 1998 or ($.01) per share.
Net income from discontinued operations was 53,537 for 2nd quarter 1999 or $0.01
per share vs. net loss of 69,492 for 2nd quarter 1998 or ($0.01) per share.
Batter Bake-Chatterley Inc., (the BBC subsidiary) offers a line of batter and
frozen finished cakes, muffins, tart shells and other desserts. BBC's financial
records and affairs
<PAGE>
are kept separate from the parent but included in the consolidated financial
statements at June 30, 1999 and 1998.
c. Plan of Operation
Exit from Retail Operations:
After analyzing the Company's retail operations, management concluded that the
unprofitable retail division was diverting its attention away from pursuing
profitable opportunities in the Company's other division. Therefore, by December
31, 1997, the company closed down four of its six stores. A fifth store, in
Macy's cellar was taken over by Ferrara Bakery from April 1, 1998. The
commissary was closed down on June 30, 1998 and the last remaining store on
Madison Avenue was sold in November 1998.
The Company retains a 50% stake in the Wholesale and Mail Order business, which
it will develop jointly with the new owners.
Under the licensing agreement, a second Greenberg retail store is scheduled to
open in August 1999.
The company will earn royalties on sales exceeding $400,000 in any new store.
The company has also signed a licensing agreement with Stone American Marketing
and meetings were held to explore licensing the William Greenberg name with a
major department store chain. This arrangement allows us to increase revenue and
profits without incurring the expenses normally associated with opening and
operating stores.
In connection with the restructuring plan, management has written down property
& equipment as of June 30, 1999 to approximately $35,000. The Company had
charged 1996 with a $450,000 provision for actions aimed at restructuring the
Company, of which $369,459 was actually incurred as of June 30, 1999. This
charge mainly comprises write down of leasehold improvements on stores that have
been closed down, provisions for lease obligations on certain retail stores, and
charges for consultants involved in the restructuring. By taking the above
actions, future periods will not be burdened with the amortization, depreciation
or expense of these costs.
We have turned the corner in the current quarter. The new management's
strategies have not only stemmed the losses but have finally steered the company
into a profitable mode.
Wholesale Operations:
<PAGE>
The next phase in the company's plan of action is to build up the wholesale end
of its business with fewer, newer and more profitable products. This process
includes the following:
Calling on supermarket headquarters and chain restaurant accounts. Brokers have
been appointed and sales calls and visits are being made.
Continue to expand the fat free and sugar free product line targeting existing
as well as new customers; and
Enter into co-packing arrangements whereby the company would introduce private
label products of other bakery operations.
Liquidity and Capital Resources:
Since its inception the Company's only source of working capital has been the
$8,642,500 received from the issuance of its securities.
In June 1995, The Company issued 180,000 shares of common stock to unrelated
parties for $600,000 and in August 1995, the Company issued 60,000 shares of its
common stock to unrelated parties for $200,000. In connection with the
acquisition of Greenberg's L.P., the Company received $2,000,000 from the sale
of two notes to InterEquity Capital Partners, L.P. ("InterEquity"). During
October 1995, the Company received net proceeds of $4,900,000 from the sale of
1,150,000 shares of its common stock in an initial public offering. During
January 1997 the Company received net proceeds of $1,747,500 from the private
placement of 1,875,500 common stock purchase warrants at $1.10 per warrant.
During October 1997 the Company received net proceeds of $883,000 from the
exercise of a portion of these common stock warrants. During January 1999, the
Company received a further $187,500 from the exercise of another 150,000 of
these warrants. Of the $5,700,000 proceeds from the aforementioned stock sales:
(i) $2,125,000 was issued to repay the InterEquity debt including interest; (ii)
$2,615,000 was used in operations; (iii) $765,00 was used to purchase property,
equipment and leaseholds; and (iv) $195,000 was used for general corporate
purposes. The $1,650,000 proceeds from the private placement warrants was used
to acquire JMS. Of the $1,071,000 proceeds from the exercise of warrants
$325,000 was used for consolidation and merger of JMS and Chatterley and the
balance is being used for corporate purposes and to fund new business.
As of June 30, 1999, the Company (continuing operations) has a negative working
capital of approximately $199,750 as compared to a negative working capital of
$111,015 at June 30, 1998.
During 1997 and 1998 Management took actions aimed at restructuring the Company
in order to reduce operating costs and enhance the Company's focus and
efficiency.
<PAGE>
Pursuant to the restructuring, a new management team was put into place,
executive contracts and leases were renegotiated and certain positions were
eliminated and an exit strategy out of retailing was completed.
The Company is continuing to seek new and profitable avenues of growth during
1999. As a result of the new strategy and concentration on growing Batter
Bake-Chatterley, there has been an increase in new business. The Company has
secured approximately $1000,000 in new annualized business from a national
supermarket chain for which it started producing in June 1999. Another $800,000
in annualized business will begin for a fund raising company starting September
1999. This is a seasonal business to be delivered between September and
December.
Reception to our new mini cakes has been overwhelming. The company has already
obtained confirmed orders in excess of $250,000 for the next five weeks. Future
plans call for producing these products sugar free for people on special diets.
The Company will continue to seek out potential candidates for mergers or
acquisition that meet its specific needs.
<PAGE>
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 16, 1999.
CREATIVE BAKERIES, INC.
By: /s/ Philip Grabow
--------------------------
Philip Grabow
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 20, 1999.
<TABLE>
<CAPTION>
Signatures Title
- ---------- -----
<S> <C>
President, Chief Executive
/s/ Philip Grabow Officer/Director
- ----------------------
Philip Grabow
Chief Financial Officer
/s/ Ashwin R. Shah (Principal Accounting Officer)
- ----------------------
Ashwin R. Shah
Director
- ----------------------
Richard Fector
/s/ Raymond J. McKinstry Director
- ----------------------
Raymond J. McKinstry
/s/ Kenneth Sitomer Director
- ----------------------
Kenneth Sitomer
/s/ Karen Brenner Director
- ----------------------
Karen Brenner
/s/ Yona Abrahami Director
- ----------------------
Yona Abrahami
</TABLE>
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