<PAGE>
<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 March 31, 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>
New York 13-3832215
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
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.
<TABLE>
<CAPTION>
Class Outstanding at March 31, 1999
- ---------------------------------------- -----------------------------
<S> <C>
Common Stock, par value $0.001 per share 5,107,250
</TABLE>
<PAGE>
<PAGE>
INDEX
Part I. Financial information
<TABLE>
<S> <C> <C>
Item 1. Condensed consolidated financial statements:
Balance sheet as of March 31, 1999 F-2
Statement of operations for the three months
ended March 31, 1999 and 1998 F-3
Statement of cash flows for the three months
ended March 31, 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
</TABLE>
Part II. Other information
Signatures
<PAGE>
<PAGE>
Item 1.
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET - MARCH 31, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 155,964
Accounts receivable, less allowance for doubtful
accounts of $16,000 300,709
Loans receivable 28,940
Inventories 267,125
Prepaid expenses and other current assets 42,614
-----------
Total current assets 795,352
-----------
Property and equipment, net 700,578
-----------
Other assets:
Goodwill, net of amortization 950,625
Security deposits 5,464
-----------
956,089
-----------
$2,452,019
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 27,299
Notes payable, bank 145,241
Loans payable, other 26,500
Accounts payable 515,642
Payroll taxes payable 104,090
Accrued expenses 295,878
-----------
Total current liabilities 1,114,650
-----------
Other liabilities:
Deferred rent 147,917
Net liabilities of discontinued operations less
assets to be disposed of 518,721
-----------
666,638
-----------
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 5,291,750 shares 5,292
Additional paid in capital 11,493,898
Deficit (10,581,090)
-----------
918,100
Common stock held in treasury, 184,500 shares (247,369)
-----------
670,731
-----------
$2,452,019
===========
</TABLE>
See notes to condensed consolidated financial statements.
F-2
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<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1998
1999 Restated
---- --------
<S> <C> <C>
Net sales $907,435 $1,003,761
Cost of sales 718,714 851,384
---------- ----------
Gross profit 188,721 152,377
Selling, general and administrative expenses 297,106 358,064
---------- ----------
Operating loss from continuing operations (108,385) (205,687)
---------- ----------
Other income (expenses):
Sale of marketable securities 3,216
Miscellaneous income 36,132
Interest income 2,077 4,138
Interest expense (2,207) (12,978)
---------- ----------
39,218 (8,840)
---------- ----------
Loss from continuing operations (69,167) (214,527)
Discontinued operations:
Loss from operations of New York facility
to be disposed of (29,722) (212,719)
---------- ----------
Net loss ($ 98,889) ($427,246)
========== ==========
Earnings per common share:
Primary and fully diluted:
Loss on continuing operations ($0.01) ($0.04)
Loss from discontinued operations (0.01) ( 0.04)
---------- ----------
Net loss per common
share ($0.02) ($0.08)
========== ==========
Weighted average number
of common shares
outstanding 5,243,750 5,161,750
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE>
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1998
1999 Restated
---- --------
<S> <C> <C>
Operating activities:
Loss from continuing operations ($69,167) ($214,527)
Adjustments to reconcile income from
continuing operations to cash provided from
continuing operations:
Depreciation 28,806 33,751
Amortization 20,228 20,223
Gain on sale of marketable securities (3,216)
Changes in other operating assets and liabilities
from continuing operations:
Accounts receivable (38,233) 38,110
Inventory (31,533) 72,012
Prepaid expenses and other current assets (1,055) 10,650
Security deposits (22,989)
Accounts payable (9,998) 10,013
Accrued expenses and other current liabilities 148,386 (260,300)
Deferred rent (3,421) (9,259)
-------- --------
Net cash provided by (used in) operating
activities 40,797 (322,316)
Net cash provided by (used in) discontinued
operations (187,882) 160,283
-------- --------
Net cash used in operating activities (147,085) (162,033)
-------- --------
Investing activities:
Proceeds from sale of marketable securities 4,533
Purchase of property and equipment (7,170)
--------
Net cash used in investing activities (2,637)
--------
Financing activities:
Proceeds from issuance of common stock and
warrants 187,500
Payment of debt (11,440) (18,922)
-------- --------
Net cash provided by (used in) financing
activities 176,060 (18,922)
-------- --------
Net increase (decrease) in cash and cash
equivalents 26,338 (180,955)
Cash and cash equivalents, beginning of period 129,626 479,312
-------- --------
Cash and cash equivalents, end of period $155,964 $298,357
======== ========
Supplemental disclosures:
Cash paid during the period:
Interest paid during the period
Continuing operations $ 2,207 $ 4,138
======== ========
Discontinued operations $ 0 $ 0
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-4
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<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 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, 1998 included in its Annual Report filed on
Form 10-KSB.
2. 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. The accounts of J.M. Specialties, Inc. and
WGJ Desserts and Cafes, Inc. are included as the subsidiaries of
Creative Bakeries, Inc. Financial statements have been restated as of
March 31, 1998 to reflect the discontinuation of the operations of WGJ
Desserts, Inc. (see Note 15)
3. Acquisition of J.M. Specialties, Inc.:
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.
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.
F-5
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<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisition of J.M. Specialties, Inc. (continued):
In connection with the acquisition, the Company transferred all of its
then owned business assets to a newly formed wholly-owned subsidiary in
exchange for all of the issued and outstanding shares if common stock
of WGJ Desserts and Cafes, Inc. As a result, the Company currently acts
as a holding company with two wholly-owned subsidiaries, JMS and WGJ.
Upon obtaining the Company's stockholders, the Company changed its name
to Creative Bakeries, Inc.
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 a least five trading days prior to the month preceding the
date on which the redemption right may be exercised.
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.
The assets acquired and the liabilities assumed at December 31, 1996, in
connection with the Acquisition, are as follows:
<TABLE>
<S> <C> <C>
Assets:
Cash $ 84,129
Accounts receivable 224,378
Notes receivable 60,000
Inventories 274,803
Prepaid expenses 14,063
Property and equipment 483,608
Other assets 27,999
--------
$1,168,980
Liabilities:
Long-term debt 23,607
Notes payable - bank 75,000
Accounts payable and accrued expenses 123,938
--------
222,545
----------
Excess of net assets acquired over
liabilities assumed 946,435
Goodwill 1,213,565
----------
$2,160,000
==========
</TABLE>
F-6
<PAGE>
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisition of J.M. Specialties, Inc. (continued):
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.
4. Acquisition of Chatterly Elegant Desserts, Inc.:
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.
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.
The assets acquired and the liabilities assumed at December 31, 1996, in
connection with the acquisition of Chatterly, are as follows:
<TABLE>
<S> <C> <C>
Assets:
Accounts receivable $124,950
Inventories 128,576
Prepaid expenses 4,713
Property and equipment 422,493
Other assets 56,700
--------
$737,432
Liabilities:
Long-term debt 111,034
Notes payable, others 47,320
Accounts payable and accrued expenses 421,960
Deferred rent 136,958
--------
717,272
--------
Excess of net assets acquired over
liabilities assumed $ 20,160
========
</TABLE>
F-7
<PAGE>
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Property and equipment:
The following is a summary of property and equipment at March 31, 1999:
<TABLE>
<S> <C>
Baking equipment $1,427,719
Furniture and fixtures 76,813
Leasehold improvements 180,422
----------
1,684,954
Less: Accumulated depreciation
and amortization 984,376
----------
$ 700,578
==========
</TABLE>
6. Intangible assets:
The excess cost over the fair value of the net assets acquired from
J.M. Specialties, Inc. aggregated $1,213,545. This goodwill has been
amortized over its estimated useful life of fifteen years. Amortization
charged to operations amounted to $20,228 in 1999 and 1998.
7. 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.
8. 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.
F-8
<PAGE>
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Commitments and contingencies:
Employment agreements:
In conjunction with the purchase of Chatterly Elegant Desserts, Inc.,
The Company entered into an employment agreement with a former employee
of Chatterly. The agreement covers a three year period commencing upon
the transfer of the Company's shares to the seller of Chatterly on
September 1, 1997. In the first year of the contract the employee is to
receive warrants to purchase 20,000 shares of the Company's common
stock at $2.50 per share. In the second two years of the agreement, the
employee is to receive an annual salary of $150,000 per year. The
Company has not recognized compensation on the granting of warrants to
this employee since the fair value of the warrants is less than the
exercise price. As of February 1998, this employee resigned and the
employment agreement, according to management, has been terminated.
This debt was settled in January of 1999 with the issuance of 40,000 of
the Company's shares in complete satisfaction of the amount due of
$100,000.
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.
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-9
<PAGE>
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Long-term debt:
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 March 31, 1999 are as follows:
<TABLE>
<S> <C>
March 31, 2000 $27,299
=======
</TABLE>
11. Earnings per share:
Primary earnings per share is computed based in 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 issued after December 15, 1997, entities with a loss
from continuing operations, the exercise of any potential shares
increases the number of shares outstanding and results in a lower loss
per share. Thus, potential issuances are excluded from the calculation
of earnings per share. These common stock purchase warrants amounted to
2,485,000 in 1999 and 1998.
Reconciliation of shares used in computation of earnings per share:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Weighted average of shares actually
outstanding 5,243,750 5,161,750
Common stock purchase warrants
--------- ---------
Primary and fully diluted weighted
average common shares outstanding 5,243,750 5,161,750
========= =========
</TABLE>
12. Inventories:
<TABLE>
<S> <C>
Inventories consist of the following:
Raw materials $ 93,494
Finished goods 74,795
Packaging supplies,
labels, etc. 98,836
--------
$267,125
========
</TABLE>
F-10
<PAGE>
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 $100,000
-------- --------
$100,000 $ 0
======== ========
</TABLE>
14. 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>
March 31, 2000 $ 73,750
March 31, 2001 73,750
March 31, 2002 73,750
March 31, 2003 73,750
--------
$295,000
========
</TABLE>
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.
15. 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.
F-11
<PAGE>
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15. Discontinued operations (continued):
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.
Net liabilities, less assets to be disposed of, of WGJ Desserts, Inc.
consisted of the following as of March 31, 1999:
<TABLE>
<S> <C>
Accounts payable $394,785
Accrued payroll 303,084
Accrued expenses 222,775
Deferred rent 42,652
--------
963,296
--------
Cash 45,556
Notes receivable 299,000
Interest receivable 9,271
Property and equipment 35,000
Covenant not to compete 31,250
Security deposits 24,498
--------
444,575
--------
$518,721
========
</TABLE>
Information relating to discontinued operations for WGJ Desserts and
Cafes, Inc. for the three months ended March 31, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales $366,041
Cost of sales 163,270
--------
Gross profit 202,771
Operating expenses $35,360 272,317
------- --------
Loss from operations (35,360) (69,546)
Loss on abandonment of leasehold
improvements 143,173
Interest income 5,638
-------- --------
Net loss from discontinued operations ($29,722) ($212,719)
======== ========
</TABLE>
F-12
<PAGE>
<PAGE>
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
16. 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>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Plan of
Operation
General:
In order to concentrate on the wholesale end, the company has
been downsizing its retail operations since 1997. Four stores were shut down as
of December 1997. In March '98 the Company closed its operations at the Macy's
location. In June '98 the Company closed its commissary at 47th street after
entering into a co-packing arrangement with JMJ Baking Corp.
In early November 1998 the Company sold its only remaining retail store on
Madison Ave., thus completing its exit from direct involvement in retailing.
The buyer has purchased:
1. The Madison Avenue Store
2. The license to open additional stores on which the Company will get royalty
and
3. A 50% stake in the wholesale and mail order business.
At March 31, 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 March 31, 1999
vs. three months ended March 31, 1998:
The Company's consolidated revenues aggregated $907,435 vs. $1,003,761. The cost
of goods sold was $718,714 vs. $851,384. Operating expenses were $297,106 vs.
$358,064. As a result, the loss from operations for the first quarter 1999 and
1998 was $108,385 and $205,687 respectively. The reduction in sales was mainly
due to the retrenchment in the retail division. The related much steeper
reduction in operating expenses was due to the restructuring at the WGJ
Subsidiary with the resultant cost savings.
The net interest expense for the quarter was $2,207.
The resulting net loss aggregated $69,167 for 1999 ($.01) per share and $214,527
for 1998 ($.04) per share.
Net loss from discontinued operations was 29,722 for 1999 ($0.01) per share vs.
212,719 for 1998 ($0.04) 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>
<PAGE>
are kept separate from the parent but included in the consolidated financial
statements at March 31, 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 management's 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 early November, 1998.
The Company retains a 50% stake in the Wholesale and Mail Order Business which
it will develop jointly with the new owners.
Since there was no justification to maintain the commissary, the Company entered
into a co-packing arrangement with JMJ Baking Corp. to supply the product at the
same high quality standard. In order to assure the quality, JMJ has employed
Greenberg's bakers and has agreed to use only Greenberg's recipes.
In connection with the restructuring plan, management has written down property
& equipment as of March 31, 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 March 31, 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 took a step back at the retail end in order to move forward. We are now at a
point where we have minimized the losses and are pursuing ways of growing the
business profitably.
Wholesale Operations:
The next phase in the company's plan of action is to build up the wholesale end
of its business with fewer but profitable products. This process includes the
following:
<PAGE>
<PAGE>
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 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) $765,000 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 March 31, 1999, the Company (continuing operations) has a negative working
capital of approximately $319,298 as compared to a negative working capital of
$1,306,004 at March 31, 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. 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.
<PAGE>
<PAGE>
As a result of the new strategy and concentration on growing Batter
Bake-Chatterley, revenues have been increased. The Company has secured
approximately $1,000,000.00 in new annualized business and estimates an
additional $800,000 in annualized sales starting in June 1999.
As announced the company is negotiating a merger with Paramark Corporation.
<PAGE>
<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 May 20, 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>
27
<PAGE>
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES
--------------------
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
- ---- ----------------------
<S> <C>
WGJ Deserts and Cafes, Inc. New York
Batter-Bake Chatterley Inc. New Jersey
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 155,964
<SECURITIES> 0
<RECEIVABLES> 300,709
<ALLOWANCES> 0
<INVENTORY> 267,125
<CURRENT-ASSETS> 795,352
<PP&E> 700,578
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,452,019
<CURRENT-LIABILITIES> 1,114,650
<BONDS> 0
<COMMON> 5,292
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,452,019
<SALES> 907,435
<TOTAL-REVENUES> 0
<CGS> 718,714
<TOTAL-COSTS> 1,015,820
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,207
<INCOME-PRETAX> (98,889)
<INCOME-TAX> 0
<INCOME-CONTINUING> (69,167)
<DISCONTINUED> (29,222)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (98,889)
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0
</TABLE>
